Soft US CPI dampened Fed rate hike expectations. Thus, the weakening dollar supported the bright metal’s outlook. As a result, gold prices started to rise. However, there are doubts about whether this rise will continue. In this environment, strategists and analysts expect further upward momentum from gold.
ANZ: Gold will see more investment demand
cryptokoin.com As you follow from , gold prices rose on Wednesday as new data pointed to a slowdown in US inflation and signaled the end of the Federal Reserve’s interest rate hike campaign. The US consumer price index (CPI) remained unchanged in October. Additionally, the annual increase in core inflation was at its lowest level in the last two years. This indicated that the inflation scenario had softened. Geopolitical tensions are becoming a recurring feature, ANZ Bank strategists say
Soft inflation data is likely to ease pressure on the Fed to tighten monetary policy further this year, strategists say. They state that this situation has led to strong purchases in the precious metal. They note that this will probably further support investment demand for gold. In this context, strategists make the following comment:
We also think that geopolitical tensions have become a recurring feature, which will bring about a structural risk premium. The effort by central banks to diversify their reserves has been a feature of the gold market since the beginning of 2022. Increasing geopolitical risks will fuel this trend. This will reduce the burden on physical and investment demand to clear the market surplus.
Market reaction to inflation data
Inflation was lower than expected, causing the dollar index to fall to its lowest level in more than two months. As a result, gold became more affordable for holders of other currencies. There was also a significant decline in US Treasury bond yields. Thus, the yield on 10-year Treasury bonds decreased to approximately 4.45%. Additionally, the yield of 2-year bonds decreased to 4.8%. These changes in the financial environment are crucial as they signal a change in the Fed’s strategy for inflation control, aiming to achieve its 2% target without triggering a recession.
Recent data has sparked speculation about the Fed’s next steps on interest rates. According to the CME FedWatch Tool, the post-report options market pointed to the possibility of a rate hike as 0% in December and minimal in January. Fed Chairman Jerome Powell’s reaffirmation of the Fed’s 2% inflation target is keeping market participants on edge about future interest rate decisions.
Foreign exchange markets and gold price expectations
The decline in the US dollar triggered by the inflation report also mobilized other important currencies. In this regard, the Euro reached its highest level in almost the last two months. The possibility of a rate cut by May next year is factored into market expectations, affecting both the value of the dollar and US Treasury yields. These conditions increase the attractiveness of gold as a safe haven asset.
Investors await U.S. retail sales data and other economic indicators such as the producer price index (PPI) to gauge the Fed’s interest rate trajectory. Despite ideal conditions for a gold price rally, the metal’s gain has been modest. This reflected the ongoing market adjustment process to various geopolitical risks. Meanwhile, the market continues to weigh inflation data as well as other global factors. The cautious stance of the market is partly a result of this.
Technical analysis of gold prices: There are signs of an upward trend!
Market analyst James Hyerczyk paints the technical outlook for gold as follows. Gold is currently trading above its 200-day and 50-day moving averages. These points stand at $1,936.07 and $1,925.23 respectively. This position is above long-term averages. This typically indicates an upward trend. However, it is important to note that the current price is closer to the minor support level at $1,952.21 than the minor resistance at $1,987.00. This closeness to support suggests some degree of vulnerability and potential for pullback, especially if the support level is breached.
Daily gold prices chartOverall, gold market sentiment is bullish. However, the market remains cautious due to the proximity to the support level. This suggests the possibility of fluctuations in this range before a clear directional trend emerges. However, as long as the moving averages continue to provide support, our prediction is that the upward move will accelerate if the 50-day moving average crosses the 200-day moving average.
