Gold prices experienced a rollercoaster ride in response to the recent US CPI data release, leaving market participants cautious. After initially dipping, gold managed to regain some ground and currently hovers around the $1911 mark. This precious metal has faced substantial challenges throughout the week, primarily driven by lingering expectations of prolonged higher interest rates.
US Inflation and Speculation on Federal Rate Hikes Today’s US CPI report exceeded expectations, with a month-on-month increase of 0.4%. Rather than providing the sought-after clarity, this surprising CPI print has stirred further speculation about the Federal Reserve’s next steps. Additionally, this uncertainty has bolstered the US Dollar’s strength, as market sentiment leans towards risk aversion, influenced by growing uncertainties in both European and US markets.
According to CME data, market participants are largely convinced of a Fed pause at the upcoming meeting, with a 97% probability. However, the November meeting holds more intrigue, as even with the sticky US CPI data, markets are pricing in a 57% likelihood of the Fed maintaining its current stance. This represents a slight uptick from yesterday’s 55%, while the December meeting shows similar probabilities.
Challenges on the Horizon for the US Economy Despite the US economy’s resilience in 2023, it faces significant tests in Q4 as consumer savings continue to dwindle. The end of the student loan repayment freeze in September could further impact growth and consumption, potentially influencing the Fed’s decision at the next meeting.
Factors to Watch The upcoming week is rich in US economic data releases, though none are expected to be game-changers. The only scenario that could alter the narrative is a substantial deviation from forecasts in the remaining data releases, which might trigger a hawkish repricing of rate hike probabilities, bolstering the US Dollar.
Gold’s Technical Outlook From a technical perspective, gold prices breached the 200-day moving average (MA) recently and have since edged closer to the psychological support level at $1900. The 14-day Relative Strength Index (RSI) indicates potential further downward movement, while the four-hour chart’s technical indicators send mixed signals. This ambiguity arises from the ongoing uncertainty surrounding the US Dollar, a key driver of recent fluctuations in gold prices.
As for the four-hour chart, it presents a contradictory picture, with a golden cross pattern appearing in the Asian session while a death cross seems imminent. Considering the broader context, there is potential for additional downside in gold prices. However, given the recent formation of a lower low, a retracement towards the inner trendline around the $1923-$1925 range, coinciding with the 50, 100, and 200-day MAs, is plausible. This retracement could offer short-term traders an attractive risk-to-reward opportunity, particularly if gold dips below the $1900 threshold.