Annual CPI in the US rose to a new decade high in September. Therefore, the Fed’s policy rate hike by 50 basis points next week has strengthened. Although the gold price regressed after the strong data, it rose with a sharp move. We present the developments with the comments of market analyst Eren Sengezer.
The price of gold slumped and then rebounded after the US CPI
The US Bureau of Labor Statistics released US inflation data on Friday. Inflation, measured by CPI, climbed to 8.6% yoy in May, the highest level in a decade. As Kriptokoin.com , this data came above the market expectation of 8.3%. Core CPI, which excludes variable food and energy prices, decreased from 6.2% to 6% in the same period. However, it exceeded analysts’ estimate of 5.9%. With the immediate reaction, the gold price fell at first, but then rose sharply.
US bond yields turned north in the second half of Friday as hot US inflation data pointed to further monetary tightening. The 10-year benchmark rate rose above 3.1% for the first time since the beginning of May. Wall Street’s main indexes suffered heavy losses.
What’s important for gold on the next week’s agenda?
The market expects the Central Bank to increase the policy rate by 50 basis points to the 1.25%-1.5% range next week. The Fed continues on its way to prefer another 50 basis point rate hike in July. Confirmation of this should come as no surprise. The real question is whether the Fed will stop the hikes in September.
More than two-thirds of respondents expect a 25 basis point increase in September, according to Reuters’ recent survey of economists. Also, more than a quarter think the Fed will increase by half a percentage point. Should Fed Chairman Jerome Powell oppose a rate hike in September, this dove could be seen as a diversion. This, in turn, is likely to cause the US Treasury bond yields to fall.
According to market analyst Eren Sengezer, in this scenario, gold is likely to gain upward momentum. On the other hand, it is possible that the Fed will leave the door open for another rate hike in September. In this case, the analyst sees the dollar as likely to continue to outperform its rivals. In addition, the analyst states that he can put pressure on the gold price.
The European Central Bank (ECB) made a policy statement on Thursday. Your bank is not yet ready to commit to a 50 basis point rate hike in September. For this reason, the analyst says the euro has come under strong selling pressure. Eurostat will release the Harmonized Index of Consumer Prices (HICP) data next Friday. Investors expect Core HICP to decline to 3.5% in May from 3.8% in April. The ECB’s interest rate outlook depends on inflation developments.
So a stronger-than-anticipated HICP data is likely to prompt investors to price a 50bps rate hike in September. In this case, the analyst sees a sharp decline in XAUEUR as likely. It is also likely to make it harder for XAUUSD to gain traction regardless of the dollar’s market valuation.
