Jump to content

Gold Price Leaps as the US Dollar Crumbles After US CPI. Where to for XAU/USD?


Recommended Posts


  • Gold rocketed higher after CPI numbers weakened the US Dollar
  • With the Fed now focused on hosing down inflation, real yields may lift
  • Volatility remains subdued as gold is kept range bound. Will XAU/USD shine?
Gold Price Leaps as the US Dollar Crumbles After US CPI. Where to for XAU/ USD?

Gold moved higher after headline US CPI printed at an ‘eye watering’ 7% year-on-year to the end of December. The highest level since June 1982, when Rocky III was breaking box office records.

If there was ever any doubt, the Fed now has a fight on its hands. The terms ‘base effect’ and ‘transitory’ will be studied by economic students for generations.

In the present, the reality of uncomfortably high inflation is front and center. Aside from price instability, the issue with high inflation is that it erodes the value of money over time.

This is good news if you are a borrower, but bad news if you are a lender.

The risk for the Fed, is that the measures required to get rid of inflation could snuff out economic growth. Some fancy footwork might be required.

Treasury yields inched lower in the belly of the curve but crept a touch higher in the short and long ends in the aftermath of the data.

All the action was in the currency ring, with the US Dollar weakening across the board. Prior to the data, there was some chatter about a higher-than-expected CPI number and the perception in the market, rightly or wrongly, is that all of the Fed’s rate hikes are fully priced in.

The US Dollar index (DXY), EUR/USD, GBP/USD and AUD/USD, among other currency pairs, saw the Dollar make multi month lows. However, gold was unable to breach the high seen last week.

This might be explained by the rise in real yields. Market priced inflation expectations moved lower, and this bumped up real yields, even in the 10-year part of the curve where nominal yields fell.

The chart below highlights these offsetting factors in play. Looking ahead, it would seem that the fate of gold is largely in the hands of changes in inflation expectations, rather than the current level of inflation.




Gold has rallied to the top end of the 1753.10 – 1831.65 range that it has been in since mid-November.

Resistance could be at the previous highs of 1829.68, 1831.65 and 1877.15 as well as the pivot point of 1834.14.

There is a clustering of short, medium and long term simple moving averages (SMA) just below the price. The price has moved above and below these SMAs several times.

Technically speaking, orders related to these SMAs would have been executed and may not be there anymore. It’s possible they have been re-instated, but there may not be as much liquidity around theses SMAs as there was previously.

On the downside, support could be at the pivot points and previous lows of 1778.50, 1761.99, 1758.93, 1753.10 and 1721.71.


Chart created in TradingView


Written by Daniel McCarthy, Strategist for DailyFX.com. 13th 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...