Gold nearly fell to new
monthly lows yesterday following the higher than expected Core CPI but
eventually recovered all the losses. I think the initial reaction was an
overreaction, as I mentioned that an uptick to 0.3% wouldn’t have been enough to
make the market to fully price in an October rate hike.
In fact, after the
knee-jerk reaction, the probability of a rate hike at the upcoming meeting
stabilised around 30%, just 9% higher than the 21% probability seen before the
CPI release.
Today, we have US PPI
on the agenda, but I don’t see it materially changing rate hike expectations.
As a result, we could see a similar market reaction to yesterday’s CPI release,
unless PPI surprises to the downside, in which case gold could stage a relief
rally.
On the geopolitical
front, not much has changed. The Saudi Arabia–Houthi conflict continues, while
US–Iran negotiations remain at a stalemate. Meanwhile, oil prices continue to
rise amid the ongoing Middle East crisis.
Looking ahead, the
focus will remain on developments in the Middle East and the Fed’s policy
outlook. A breakthrough in US–Iran negotiations could trigger a strong rally in
gold, as traders would scale back rate hike expectations. A Fed that is slow to
respond to rising inflation could also support gold if inflation expectations
rise faster than nominal yields, pushing real yields lower.
On the downside, a more
hawkish Fed or a further escalation in the US–Iran conflict could put
additional pressure on the precious metal.
GOLD TECHNICAL ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can
see that gold(CFD contract) dropped again yesterday
following the higher than expected core CPI but eventually recovered all the
losses. We still have the downward trendline that could act as resistance. The
sellers will likely lean on the trendline, with a defined risk above it, to
position for a drop into the 3,885 level. The buyers, on the other hand, will want
to see the price breaking higher to pile in for a rally into the 4,700 level
next, with the 4,500 level as the first target.
GOLD TECHNICAL ANALYSIS – 4
HOUR TIMEFRAME
On the 4 hour chart, we can
see more clearly the downward spike on the CPI release and then the recovery. From
a risk management perspective, the sellers will have a better risk to reward
setup around the trendline and the 4,228 resistance to keep targeting new lows.
The buyers, on the other hand, will need the price to break above the trendline
and the resistance to open the door for new highs and target the 4,400 level
next.
GOLD TECHNICAL ANALYSIS – 1
HOUR TIMEFRAME
On the 1 hour chart, we
have a minor downward trendline that could act as resistance. The sellers will
likely lean on the trendline, with a defined risk above it, to keep pushing
into new lows. The buyers, on the other hand, will look for a break to extend
the pullback into the downward trendline and the 4,228 resistance. The red
lines define the average daily range for today.
UPCOMING CATALYSTS
Today we get the US PPI, the
US Retail Sales and the latest US Jobless Claims figures. We do have also Fed
Chair Warsh speaking very late in the day in a fireside chat with IMF Managing
Director Georgieva. He’s against forward guidance, so he might not say anything
worthwhile, but it’s worth watching it.
This article was written by Giuseppe Dellamotta at investinglive.com.