Gold Price Outlook Now Turns to CPI Data as XAU/USD Flirts With Wedge Break
The gold price was in relative tatters on Monday. However, that didn’t stop the yellow metal from making a solid showing in the pre-market. A key US data release is slated for later in the day and could prove to be an important catalyst for both the bullion and the Dollar. Although the Federal Reserve is expected to hike interest rates by 50 basis points next month, it appears that the pace of tightening may be slowing down. In fact, San Francisco Fed President Mary Daly said that the central bank is ‘far away’ from achieving its price-stability goal.
As for the gold price itself, the metal is still in the process of consolidating around a seven month high. It should be noted that the most recent output was a tad disappointing, especially given that it was the first decline in over two years. Despite that, the US Dollar has not been particularly strong of late and it’s possible that the non-interest-bearing Gold price is benefiting from the nudge. Regardless, it is a good time to take a step back and look at the big picture.
One of the most important US data releases this week is the US Consumer Price Index, which is due at around 13:30 GMT on Tuesday. While it is expected to be relatively weak on a month-to-month and year-to-year basis, the core gauge is expected to rise to 0.3% on a monthly basis, from the previously reported 0.2%. On the other hand, the headline rate is projected to fall to 7.3% from the 7.7% recorded y/y in the previous month.
The best part about this chart is that it is not only a great measure of the state of the economy, but it is also a valuable benchmark for both the dollar and the Federal Reserve. As such, the chart is a worthy study in itself.
For one, it is likely that the CPI will come in much lower than the consensus estimates, and will thus provide some much needed context for the stuttering Gold price. Moreover, the Federal Reserve has been surprisingly dovish of late, making the dollar an attractive investment. This has resulted in the yellow metal enjoying an inverse correlation with the benchmark 10-year Treasury bond yield. That’s a feat that’s rarely been accomplished, and one that is likely to continue into the near future.
Even with a lack of meaningful action, the gold price remains in a buy the dips trade. With the upcoming US CPI and other inflation related data, it’s only a matter of time before the gold price starts to rise again. If it does, we may see the first significant mover of the year. Until then, we’ll have to settle for the usual suspects, including the Dollar, which continues to find favor amongst investors.
Besides the Fed, other central banks around the world are stepping up their game and tightening up. While this may seem like a good thing, it could also cause trouble for non-interest-bearing Gold prices.