Gold prices are in a bullish consolidation phase, hovering near a one-week high of $1,865 in Asian trading on Wednesday. The United States Dollar (USD) is facing renewed downward pressure as US Treasury bond yields across the curve slip, propelling gold towards the $1,880 mark.
Gold is awaiting the release of US PPI data, Fed speeches, and the Federal Reserve’s Meeting Minutes. The recent shift in tone from Fed policymakers towards a more dovish stance has caused traders to scale back their bets on another rate hike by the central bank before year-end. The likelihood of a November Fed rate increase is currently only at 13%.
Several Fed officials have voiced their dovish opinions in recent days. Atlanta Fed President Raphael Bostic stated, “we don’t need to increase rates any more,” while Minneapolis Fed President Neel Kashkari mentioned that “higher bond yields could leave less for the Fed to do.” San Francisco Fed Chief Mary Daly also suggested that tight bond yields could act as an equivalent to another rate hike. These comments have solidified the expectation that the Fed may refrain from further tightening to combat inflation, which could impact borrowing costs for households and businesses.
The dovish Fed outlook, coupled with hopes of additional stimulus from China, has boosted risk appetite and weighed on the US Dollar and Treasury bond yields. China is reportedly considering issuing at least CNY1 trillion ($137.1 billion) of additional sovereign debt to fund infrastructure projects, which has contributed to improved market sentiment.
Despite these factors, gold’s further upside has been tempered as investors exercise caution ahead of key data releases. Wednesday’s US Producer Price Index (PPI) inflation data and the Fed’s Meeting Minutes will be closely watched. An upside surprise in PPI data could revive expectations of a November Fed rate hike, particularly in light of Thursday’s crucial US Consumer Price Index (CPI) release.
The Fed Minutes and speeches from Fed officials will also be scrutinized for their potential impact on the US Dollar and risk sentiment, both of which could influence gold’s price action.
On the technical front, gold appears to be in bullish territory after the Relative Strength Index (RSI) indicator retreated from the overbought region. This suggests the potential for a fresh upswing toward the key resistance level at $1,880, which corresponds to the highs seen on September 28 and 29. Before reaching this level, gold may face resistance from the bearish 100-Simple Moving Average (SMA) at $1,874.
Support for gold buyers can be found at the upward-pointing 21 SMA at $1,845, followed by the flattish 50 SMA at $1,838. If further support is needed, the $1,820 level and the multi-month low of $1,811 could come into play.