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Will US Inflation Change Gold’s Trend?


US inflation data surprised markets with lower numbers. With such optimism, gold is trying to overcome resistance.

Inflation data is lower than expected

Inflation data on Wednesday in the US produced surprising numbers. The consumer price index is 8.5% year-on-year, which is below the expected 8.7% and the previous 9.1%. Inflation was lower both in annual and monthly periods. In addition, core inflation, which is more reliable for the Fed’s decision-making, is also lower. The data instilled optimism in markets that are in green territory.

The main interpretation is that the decline in inflation can ease the pressure on the Fed’s monetary policy to raise interest rates. This means that an aggressive rate hike should not be on the table. Despite this, the yellow metal ended the day in the red. The immediate reaction was very positive and gold broke above the $1,800 level (spot FX). But after that, the price ended at $1792.

Read more: The dollar index is consolidating ahead of inflation data

Strong psychological level

Technically, gold is testing a strong psychological level at $1,800 (spot FX). This week, the price tried to establish itself above this level, but none of these attempts were successful. Futures volume is rising, and confirmation of a break above this resistance will open the window to the $1,900 level.

30 minute chart of XAU/USD (gold dot). Resistance at the level of $1800. Source: tradingview.com

The volume of futures shows that the largest trading volume this year is in the area of ​​$1820-1900. This volume was created during the downtrend in gold in recent months. We reported to you about this area several times between May and June. Now the price of the yellow metal is rising again to the support that previously stopped the downtrend.

4 Hour GC (Gold Futures) Chart, Annual Volume Market Profile.  Source: author's analysis

4 Hour GC (Gold Futures) Chart, Annual Volume Market Profile. Source: author’s analysis

Will US Inflation Data Change Gold’s Trend?

On the fundamental side, gold appreciation may be more favorable. Lower inflation may translate into less aggressive monetary policy. The highest trading volume this year is at $1,850 (GC), which can act as a magnet for order fulfillment. And it is necessary to break and confirm the level of 1800$ (FX). BUT the global economy is still in recession and slowing down. Despite the low inflation posted in August, the hard data is more negative than market hopes. Volatility remains, and any slight sign of change in fundamentals can trigger huge market activity on either side.

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