Gold prices fell on Tuesday as cautious investors awaited US inflation data for clues about how aggressive the Fed should be to raise interest rates. Meanwhile, analysts tried to predict the next direction of gold. Here are the details…
Inflation data awaited for gold
Spot gold fell to $1,721.15 an ounce. Prices had reached a two-week high of $1,734.99 as the dollar dropped in the previous session. U.S. gold futures were down 0.5% at $1,732. “There are expectations that inflation will be much softer,” said Matt Simpson, senior market analyst at City Index. “This may actually help gold move a little further, as expectations may soften after the September meeting,” he said. However, he added, “more volatile movement will follow if we don’t see that happening.”
He stated that these are the areas where we can see that gold is really under pressure. For us to be sure of the bulls regaining control, we need to see gold break above $1,740. US consumer price data, expected to be released in the evening, is expected to show that overall inflation rose 8.1 percent year-on-year in August, compared to 8.5 percent in July.
Data focuses on the Fed meeting next week. A Reuters poll of economists expects the central bank to raise rates by another 75 basis points and hold the policy rate steady for an extended period when it finally peaks. While gold is seen as a hedge against inflation, higher interest rates increase the opportunity cost of holding bullion, while also raising the dollar in which the precious metal is priced. During the day, the dollar index held steady near its two-week low.
Will there be an uptrend?
Meanwhile, silver futures rallied, capturing nearly 6 percent. Gold futures hit a two-week high, helping boost demand for precious metals ahead of critical data on Tuesday as the US dollar hit a two-week low and Treasury yields retreated. Analysts attributed higher moves for gold and silver to weaker dollar as well as lower Treasury yields.
Jim Wyckoff, senior analyst at Kitco, wrote that gold and silver prices are making good progress “backed by another sharp drop in the US dollar index, which hit a two-week low overnight.” City Index and FOREX.com market analyst Fawad Razaqzada said gold “has been able to defend the $1,700 support level several times in recent days, indicating that bottom buyers are trying to take advantage of lower prices.”
“Whether gold and silver can start from here and go in reverse is almost entirely dependent on the direction of the US dollar,” he said. With the release of US inflation data for August, the dollar “will face a major test on Tuesday” and “will certainly be the main focus of this week.” “Gold investors are hopeful that inflation will peak,” Razaqzada added. He stated that the precious metal may rise after this development.
OANDA analyst: We will see the traders’ position today
“We are likely to see further softening on Tuesday,” said Craig Erlam, senior market analyst at OANDA. Therefore, we can see the traders’ position for a positive US inflation report, which could lead to a larger increase,” he said. Gold’s moves seemed to be overshadowed by silver, which often follows gold but can also be influenced by economic cues given its industrial uses. High Ridge’s Meger described it as “a dramatic short closing rally.”
