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Gold Capped but US Inflation Data May Push Prices Lower

Gold Capped but US Inflation Data May Push Prices Lower

Nick Cawley, Strategist

Talking Points

- Gold struggles to regain last Friday’s NFP-losses as the US Dollar stabilizes near its recent lows.

- Traders will look to Friday’s inflation report for the next short-term movement.

Check out our new Trading Guides: they’re free and have been updated for the third quarter of 2017.

After falling sharply after the release of last Friday’s strong-than-expected NFP release, gold has struggled to make any decent headway as the US dollar sentiment changes from negative to neutral. Friday’s fall took the precious metal out of its previous upwards channel and any further strength in the USD may see the 100-day ema, currently at $1248.7/oz, as a possible target. With Friday’s consumer price index expected to tick-up to 1.8% from last month’s 1.6%, any upside beat will push bond yields higher and make gold as an asset class less attractive.

Gold Price Chart: Daily Timeframe (April – August 8, 2017)

Gold Capped but US Inflation Data May Push Prices Lower

Chart by IG

The US dollar in contrast may be looking at short-term support after this year’s heavy falls. The US Dollar Index has lost over 10% since the start of the year – from 103.8 to 93 - on a lack of fiscal clarity and action by US President Trump and a resurgent Euro. The strength of the EUR however is now presenting ECB President Draghi with its own problems as it weighs on inflation in the single bloc. The ECB’s head is still committed to get inflation up to the central bank’s target of around 2%, from a current level of 1.3%, increasing expectations that the current loose monetary policy will remain in place for longer than originally thought.

Those however who believe that gold has further upside potential will take heart from the recent IG Client Sentiment indicator – a contrarian view to crowd sentiment - which highlights that the current price trend may reverse higher despite retail traders remaining net-long. While data shows 62.0% of traders are net-long with the ratio of traders long to short at 1.63 to 1, the percentage of traders net-long is now its lowest since Mar 31 when it traded near $1248.9/oz.However sentiment may be changing with the number of traders net-long 1.1% lower than yesterday and 11.3% lower from last week, while the number of traders net-short is 25.3% higher than yesterday and 45.2% higher from last week.

Why and how do we use the IG Client Sentiment in trading? See our guide and real-time data.

--- Written by Nick Cawley, Analyst

To contact Nick, email him at nicholas.cawley@ig.com

Follow Nick on Twitter @nickcawley1

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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