Gold price dodges CPI shock as US yields hand bulls lifeline
- Gold reclaims the 100-day SMA after CPI-driven post-release volatility.
- Fed hike odds surge to 91%, but US Dollar reaction fades.
- Weak sentiment and falling yields help bullion regain traction.
Gold (XAU/USD) price bounces off daily lows beneath $4,300 on Friday and reclaims the 100-day Simple Moving Average (SMA) of $4,335 following the release of US inflation data, which fueled speculation that a Federal Reserve (Fed) rate hike next week is almost certain. At the time of writing, XAU/USD trades at $4,3737, up over 1.29%.
XAU/USD rebounds after CPI as Dollar reaction fades and yields slip
August’s US Consumer Price Index (CPI) increased by 0.4% MoM, with an annual rise of 3.4%, both matching expectations. Core CPI went up 0.3%, slightly above the forecast of 0.2%; over the past year, it remained at 2.4%, down from July and in line with estimates.
The data strengthened the Greenback. But the initial reaction waned even though money markets have priced in a 91% chance of a rate hike by the Federal Reserve at next week’s meeting, according to Prime Terminal.
Hence, the US Dollar Index (DXY), which tracks the performance of a basket of six currencies against the Greenback, clings to 99.00, down a minimal 0.05%.
The University of Michigan Consumer Sentiment for September deteriorated as US households are becoming pessimistic. The index fell from 51.7 to 47.8, missing forecasts of 51. Joanne Hsu, the survey’s director, commented that “With a resurgence in fuel prices and trade tensions, consumers anticipate greater pressures on their pocketbooks to come.”
The same report noted that Americans expect inflation to rise from 4% to 4.6% in one year, while over five years, they foresee inflation ticking higher from 3.3% to 3.4%.
Meanwhile, bullion prices stand firm, advancing steadily and capitalizing on falling US bond yields during the session. The US 10-year Treasury yield drops 1 basis point to 4.951%, though over the week it surged more than 16.5 basis points, or 3.49%.
All in all, Gold’s faith will fall on next week’s Fed monetary policy decision and on Fed Chair Kevin Warsh's press conference.
Besides the FOMC’s meeting, the US economic docket will feature the ADP Employment Change 4-week average, the NY Fed Empire State Manufacturing Index, Retail Sales, housing and jobless claims data, and speeches by Fed officials.
XAU/USD Price Forecast: Gold rises but struggles as sellers defend $4,400
Price action shows Gold drifting higher but struggling to break above $4,400, suggesting sellers are stepping in around that level, pushing back against buyers and setting their sights on $4,500 or higher.
Despite this, the Relative Strength Index (RSI) is aiming higher, but below its neutral level. Therefore, further selling pressure remains, capping XAU’s advance.
On the upside, the first key resistance is $4,400. Once cleared, this exposes key psychological levels at $4,450 and $4,500, ahead of the 200-day SMA at $4,538.
On the downside, XAU/USD must fall below the 100-day SMA at $4,335 and clear $4,300. Underneath sits September’s 2 low of $4,282, followed by the 50-day SMA at $4,269.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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