Gold prices (XAU/USD) continue their impressive recovery, surging to a fresh two-week high after recently hitting a seven-month low around the $1,810 mark. The precious metal is riding a wave of safe-haven demand, intensified by escalating geopolitical tensions in the Middle East, coupled with the recent decline in the US Dollar (USD). Global bond yields are also on the decline, further bolstering gold’s rally.
The resurgence in gold has seen it recoup over 30% of the losses it suffered in September. Remarkably, this rally remains resilient in the face of generally positive sentiment in the equity markets. Alongside this, growing speculation that the Federal Reserve (Fed) is nearing the end of its rate-hiking cycle suggests that the path of least resistance for XAU/USD is upward. However, investors are now awaiting the latest US Consumer Price Index (CPI) report, set to be released during the North American session, to provide fresh direction.
The US CPI report will be crucial in shaping expectations regarding the Fed’s future rate-hike trajectory, which, in turn, will influence USD demand and impact gold prices. If the report reveals further moderation in US inflationary pressures, it could reinforce expectations that the Fed will maintain its current policy in November. This scenario would likely lead to additional USD weakness and increased demand for the US Dollar-denominated gold. Still, the reaction to a strong CPI reading is expected to be short-lived.
The conflict in the Middle East between Israel and the Palestinian Islamist group, Hamas, continues to drive safe-haven flows toward gold. Federal Reserve officials have also indicated that the recent surge in Treasury yields may reduce the necessity for further rate hikes. The retreat in the benchmark 10-year US Treasury note yield from its 2007 highs is another factor supporting XAU/USD.
Market participants are increasingly convinced that the Fed’s tightening cycle is nearing its end, with interest rates peaking. As the US Dollar moves further away from an 11-month high, gold gains further support. The minutes from the September Federal Open Market Committee (FOMC) meeting revealed that most Fed members support the case for one more rate hike.
Investors are closely watching the US consumer inflation figures. The headline CPI is anticipated to have slowed to 0.3% in September, with the yearly rate expected to decline to 3.6%. The more closely monitored Core CPI is projected to have remained steady at a 0.3% monthly pace and a 4.1% year-on-year rate.
Gold’s price action is eyeing the $1,900 level, but technical indicators are yet to fully confirm a bullish bias. A sustained move beyond $1,865-1,866 resistance levels could pave the way for additional gains toward $1,885. However, the road ahead may see strong resistance near the $1,900 mark and, subsequently, the 200-day Simple Moving Average (SMA) at approximately $1,928-1,930.
On the downside, the $1,866-1,865 resistance level may provide immediate support, with the $1,853-1,850 range acting as the next level of defense. A convincing break below this range could negate the positive outlook and make gold vulnerable to a retest of the multi-month low around $1,810, reached just last week. The outcome of the crucial CPI report will play a pivotal role in determining gold’s next move.