Gold benefiting from USD’s weakening

Gold continued to be on the rise after it escaped the boundaries of its past sideways motion since the 3^rd of the month. The weakening of the USD may have played an increased role in the strengthening of the precious metal’s price. It’s characteristic that the negative corelation between the two trading instruments was on display once again over the past ten days, despite some interruptions. Since out last report though we have to note that two events tended to form Gold’s movement and direction.   

October’s US CPI rates

The first event since our last Gold report on the 8^th of the month that caused golds’ price to jump higher was definitely the release of the US CPI rates for October. It should be noted that the headline rate slowed down more than expected breaking the 8% yoy barrier and reaching as low as 7.7% yoy. Yet at this point we have to note that the headline rate slowed down also on a month on month level as did also both the core CPI rates and all of them slowed down below market expectations. The report was an indication that inflationary pressures in the US economy have peaked and are on the retreat, while indirectly also reaffirmed that the Fed’s rate hikes are actually working in curbing inflation. The soft reading quickly intensified market expectations for the Fed to ease its rate hiking path and it’s characteristic that the market currently prices in by 85% that the Fed will proceed with a 50 basis points rate hike in its December meeting, according to Fed Fund Futures (FFF). Also US yields dropped with the 10 year yield reaching as low as 3.811% which is a 6 month low, polishing the value of the shiny metal further. The retreat of the USD seems to continue, and overall as long as the market’s expectations for the Fed to ease its rate hiking path are intensifying, we may see gold traders picking up the opportunity to buy the precious metal. 

Fed policymakers’ statements

It should be noted that the ascent of gold’s price higher seemed to slow down especially after the weekend. Comments by Fed policymakers seemed to cause second thoughts among market participants, whether last week’s turmoil was a market overreaction or not. The USD tended to stabilise, halting its drop after Fed Governor Waller made some comments late last Friday. Fed Board Governor Waller practically stated that the Fed is not to soften its stance against inflation and that more rate hikes are coming, yet tended to imply that the size of future rate hikes is to shrinken. Nevertheless Waller stated that ‘We’ve got a long, long way to go’. In a similar tone, also Fed Vice Chair Brainard warned of more rate hikes to come, yet also stated that ‘soon’ it may be time to move in a slower pace of rate hikes. The comments on the one hand, seem to allow for an easing of the Fed’s rate hiking path, yet on the other hand warn that more rate hikes are coming and may imply that the end rate may be higher than what was expected. In any case the comments allowed for the greenback to continue to weaken yet at a slower pace and in reverse allowed also for Gold’s price to continue to rise. We highlight tomorrow the release of the US retail sales growth rate for October, as well as industrial output growth rate for the same month, yet after that it may be up to the market sentiment and the planned statements of Fed officials and we expect the negative corelation of gold to the USD to be on display once again.

Technical Analysis

XAUUSD H4 Chart

• Support: 1770 (S1), 1730 (S2), 1700 (S3)
• Resistance: 1805 (R1), 1847 (R2), 1880 (R3)

Gold’s price continued to move higher in the past week reaching a three month high after breaking the 1770 (S1) resistance line, now turned to support. We tend to maintain a bullish outlook for the precious metal’s price as long as it remains above the upward trendline incepted since the 3^rd of November. Please note that the RSI indicator below our 4-hour chart is above the reading of 70, which on the one hand underscores the bullish sentiment of the market for gold, yet on the other tends to imply that the precious metal’s price has reached overbought levels and is ripe for a correction lower. Should the bulls maintain control over gold’s price, we may see it breaking the 1805 (R1) resistance line and aim for the 1847 (R2) resistance level, with 1880 (R3) being the highest level we set for Gold’s price for now. Should the bears take over, we may see gold’s price dropping breaking the prementioned upward trendline in a first sign of a trend reversal, break the 1770 (S1) support line clearly and aim for the 1730 (S2) support hurdle, while the 1700 (S3) support barrier is the lowest level set for the bears currently.  

Disclaimer:
This information is not considered investment advice or an investment recommendation, but instead a marketing communication. IronFX is not responsible for any data or information provided by third parties referenced or hyperlinked, in this communication.

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