Gold price (XAU/USD) encounters fresh market dynamics as the US Bureau of Labor Statistics unveils a surprisingly resilient Consumer Price Index (CPI) report for August. US headline inflation expanded as expected, rising by 0.6%. However, core CPI, which excludes volatile oil and food prices, exceeded estimates, registering a 0.3% increase, surpassing July’s reading of 0.2%. Annually, US headline CPI accelerated to 3.6%, matching expectations and surpassing the previous release of 3.2%. Core CPI remained in line with expectations at 4.3%, staying below the previous reading of 4.7%.
Market participants are concerned that the lingering risk of higher headline inflation could increase the likelihood of another Federal Reserve (Fed) interest rate hike later in the year. The Fed is widely anticipated to maintain elevated interest rates, potentially imposing stricter monetary policies on the US economy. While labor growth remains steady, there is growing pressure on firms to enhance efficiency by managing costs. In addition to inflation data, gold prices are expected to exhibit significant movements following the European Central Bank’s (ECB) interest rate decision on Thursday.
price remains under pressure due to stubborn inflation
Gold price tests territory below the crucial support of $1,910.00 as US inflation data for August turned out stickier than anticipated. US headline CPI, on an annual basis, rose to 3.7% vs. expectations of 3.6% and July’s reading of 3.2%. Core CPI, which strips off volatile food and energy prices, decelerated to 4.3% as anticipated against 4.7% recorded a month ago.
Monthly headline and core inflation expanded by 0.6% and 0.3%, respectively. A strong rebound in gasoline prices has triggered upside risks to headline inflation. Global Oil prices have rallied as much as 40% from May as OPEC sees rising demand for oil in the coming months. Generally, markets majorly focus on core inflation. Still, Federal Reserve policymakers would not ignore a rebound in headline CPI as it would impact the real income of households and may propel prices of goods and services at factory gates.
Discussions about one more interest rate increase in the rest of the year could accelerate if higher energy prices increase pain for households. However, the softening of core inflation beyond expectations could encourage the Fed to announce a pause to the historically aggressive rate-tightening spell.
As per the CME Group Fedwatch Tool, traders see a 93% chance for interest rates to remain unchanged at 5.25%-5.50% in September. For the rest of the year, traders anticipate almost a 55% chance for the Fed to keep the monetary policy unchanged.
Investors remain worried about US equities due to the upside risks of higher interest rates to corporate performance, triggering a risk-off profile. Meanwhile, Goldman Sachs CEO David Solomon said on Tuesday that the US economy is likely to avoid a significant recession, but warned that inflation would be more persistent than market participants currently expect, as reported by Reuters.
The likelihood of a soft landing is high as inflation is coming down while the labor market is stable. However, inflationary pressures in excess of the desired rate of 2% would be the hardest nut to crack. The US Dollar Index (DXY) sees less volatility above the immediate support of 104.40 ahead of the inflation data. Meanwhile, 10-year US Treasury yields rose sharply to 4.3%.
US consumer inflation data will be followed by Producer Price Index (PPI) and Retail Sales data, which are scheduled for Thursday. Gold price is expected to deliver a power-pack action after the announcement of the interest rate decision by the European Central Bank (ECB) on Thursday. The ECB is widely expected to keep the main refinancing operations rate at 4.25% due to easing price pressures and rising risks of an economic slowdown.
Technical Analysis: Gold price delivers wild moves around $1,910
Gold price trades back and forth above the round-level support of $1,900.00 as investors remain sidelined ahead of the inflation data. The precious metal auctions inside the previous day’s range, demonstrate a sheer contraction in volatility. The yellow metal continues to find support from the 200-day Exponential Moving Average (EMA), which trades around $1,910.00, while the 20-day EMA around $1,921.00 continues to act as a barricade for Gold price.