Jump to content

Gold Prices Coil Up For Breakout. Will US Inflation Data Be The Trigger?


Recommended Posts

GOLD PRICE OUTLOOK:

  • All eyes on US CPI report as gold prices take cues from real interest rates
  • Data beckoning a more hawkish Fed response may pressure bullion lower
  • Sellers might look for a close below $1778/oz for breakdown confirmation
Gold Prices Coil Up For Breakout. Will US Inflation Data Be The Trigger?

Gold prices began a structural advance in September 2018 as the pickup in economic growth from early 2016 peaked, marking the end of the Fed’s rate-hike cycle and driving a parallel drop in real interest rates. The non-yielding metal grows more attractive as a store of value for investors as the return on cash declines.

As it happened, real rates dropped to 0 percent by late 2019 and raced into negative territory at the onset of the Covid-19 pandemic as the Fed unleashed aggressive stimulus to prevent a credit crisis. Not surprisingly, this was drove bullion prices sharply higher.

The rise was capped in August 2020 as the US central bank signaled that it was done expanding its stimulus program. That changed the object of speculation from how policymakers might ease further to when tightening would commence. Appropriately enough, real yields found a bottom simultaneously.

Gold Prices Coil Up For Breakout. Will US Inflation Data Be The Trigger?

Gold price chart created using TradingView

Since then, a choppy range has prevailed as traders and policymakers alike attempt to divine next steps. The second half of 2021 marked a pointedly hawkish shift in Fed rhetoric as rapidly accelerating inflation appeared stickier than a mere ‘transitory’ by-product of recovery from Covid-triggered economic lockdowns.

Nominal yields have surged against this backdrop, but priced-in inflation expectations have grown faster and thereby kept real rates pinned in place. This has allowed gold to sustain store-of-value appeal and hold up even as it is unable to make further upside progress.

US CPI DATA IN FOCUS AS TRADERS WEIGH FED IMPACT ON REAL RATES

The spotlight now turns to December’s US CPI report. Core price growth is seen accelerating to 5.4 percent on-year, the fastest in 30 years. The headline number is seen hitting 7 percent on-year for the first time since 1982. Traders will be keen to weigh up any deviations as well as the make-up of the rise.

Leading ISM survey data suggests price pressures have eased in the manufacturing sector – consistent with other evidence suggesting supply chains are on the mend – while service-sector inflation remains near recent highs. That may speak to the stickiness of wage growth, revealed to be hotter than expected last week.

CPI data that underpins this narrative – that is, that the locking-in of brisk wage gains on the service side, the biggest part of the US economy, will keep inflation elevated – may beckon a sterner Fed. This might cap expectations for reflation to accelerate and boost nominal yields, lifting real rates at gold’s expense.

 

GOLD TECHNICAL ANALYSIS – COILING UP FOR A BREAKOUT?

Consolidation in a narrowing range below the 1834.14-49.64 zone continues. A break above this barrier’s upper boundary may expose resistance capped at 1877.15. Alternatively, a close below the January swing low at 1778.50 would break 5-month rising trend line. A test of support anchored at 1750.78 might follow.

Gold Prices Coil Up For Breakout. Will US Inflation Data Be The Trigger?

Gold price chart created using TradingView

GOLD TRADING RESOURCES

Written by Ilya Spivak, Head Strategist, APAC for DailyFX. 12th Jan 2022.

Link to comment

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
  • Posts

    • Sainsburys full year earnings and Unilever’s first quarter trading update both say the same thing, UK consumers are in for higher prices. The war in Ukraine, supply chain issues and the effects of ongoing Covid all to blame.      
    • US Dollar (DXY) Daily Price and Analysis US Q1 GDP may stall the greenback’s advance. A 20-year high nears for the US dollar. The multi-month US dollar rally continues with the greenback printing a fresh high today ahead of the first look at US Q1 GDP at 12.30 GMT. The US dollar basket (DXY) has been boosted by renewed weakness in the Euro and the Japanese Yen, as investors move from lower-yielding to higher-yielding currencies, while safe-haven flows continue to benefit the greenback. The US growth release later in the session is expected to show a sharp slowdown from the robust Q4 figure of 6.9%. The markets are currently pricing in growth of just 1% for the first three months of this year, with the slowdown mainly due to a reduction in inventory accrual over the quarter. This release is unlikely to move the greenback, unless there is a large miss or beat, as the Fed believe that 2022 US growth will be robust enough to let them tighten monetary policy sharply without damaging the economy. The latest US Core PCE data – the Fed’s preferred inflation reading – is released on Friday and this may have more effect on the US dollar than today’s GDP data. For all market moving economic data and events, see the DailyFX Calendar. The ongoing US dollar rally has been aided by weakness across a range of G7 currencies including the Euro, the Japanese Yen, and the British Pound. The Euro continues to battle with lowly growth expectations, exacerbated by energy concerns, the British Pound is mired by weak economic data, while the Japanese Yen is in freefall as the BoJ continues with its ultra-loose monetary policy.   The US dollar continues to press higher and looks set to break above 103.96, the March 2020 high. Above here the US dollar would be back at levels last seen nearly two decades ago. The March resistance will likely hold in the short-term, especially with month-end portfolio rebalancing at the end of the week, but US dollar strength is set to continue in the months ahead. USDOLLAR (DXY) WEEKLY PRICE CHART – APRIL 28, 2022 {{THE_FUNDAMENTALS_OF_BREAKOUT_TRADING}} What is your view on the US Dollar – bullish or bearish?   Apr 28, 2022 | DailyFX Nick Cawley, Strategist
    • While Tesla has nothing directly to do with Elon Musk buying Twitter - TSLA stock closed down 12% on news that Musk may have to sell stock and use other holdings to stand against the loan to finalise the purchase of the social media giant.        
×
×
  • Create New...