Gold Price Defends Yearly Low with US CPI on Tap

Gold Price Talking Points

The price of gold tests the 50-Day SMA ($1674) as it retraces the decline following the Federal Reserve interest rate decision, and the update to the US Consumer Price Index (CPI) may prop up the precious metal as the report is anticipated to show easing price pressures.

Fundamental Forecast for Gold Price: Neutral

The price of gold trades to a fresh weekly high ($1676) amid the kneejerk reaction to the US Non-Farm Payrolls (NFP) report, and bullion may attempt to retrace the decline from the October high ($1730) as it continues to defend the yearly low ($1615).

At the same time, the US CPI may influence the price of bullion as both the headline and core reading for inflation are expected to narrow in October, and evidence of slowing inflation may heighten the appeal of gold as it puts pressure on the Federal Reserve to winddown the hiking-cycle.

Source: CME

As a result, expectations for a shift in Fed policy may drag on US yields as the CME FedWatch Tool reflects a greater than 50% probability for a 50bp rate hike, but a higher-than-expected CPI print may provide the Federal Open Market Committee (FOMC) with greater scope to pursue a highly restrictive policy as Chairman Jerome Powell insists that “it is very premature” to pause the hiking-cycle.

In turn, signs of sticky price growth may force the FOMC to maintain its existing approach in combating inflation as Chairman Powell emphasizes that “we haven't seen inflation coming down,” and the price of gold may continue to face headwinds over the remainder of the year as the central bank retains a hawkish forward guidance for monetary policy.

With that said, gold may mirror the price action from last month if it struggles to hold above the 50-Day SMA ($1674), but a downtick in the US CPI may prop up the price of bullion as it dampens speculation for another 75bp Fed rate hike.

--- Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong