Gold Soars to $1,796 – US Inflation Concerns & FOMC Minutes Boost Safe-haven Demand
Arslan Butt • 2 min read
- On Thursday, gold is trading with a bullish bias at the $1,789 level, amid weakness in the US dollar
- Consumer Price Index for September surged to 0.4% against the expected 0.3%
- Participants at FOMC meeting believe that inflation risks could continue longer than expected
On Thursday, gold is trading with a bullish bias at the $1,789 level, on the back of a weak US dollar. On Wednesday, gold prices closed at $1,792.75, after reaching a high of $1,797.35, and a low of $1,757.95. The precious metal prices surged to their highest level since September 16, boosted by fears of an economic hit due to soaring energy prices, combined with a decline in the US dollar, as investors await US inflation data.
Weak Dollar Triggers Safe-haven Status in Gold
The US dollar index, which measures the greenback’s value against a basket of six major currencies, fell to 94.0 on Wednesday, amid inflation fears. The Treasury Yield on the benchmark 10-year note also fell to 1.530, which put further pressure on the US dollar, hence the surge in the gold prices.
The rally in the yellow metal was triggered by the latest US consumer price index data that affirmed rising inflation in the world’s largest economy. Furthermore, the minutes of the Federal Reserve meeting also confirmed that tapering would begin soon.
On the data front, at 17:30 GMT, the Consumer Price Index for September surged to 0.4%, against the expected 0.3%. This supported the US dollar, capping gains in gold. Moreover, the core CPI remained flat with the expected 0.2%.
According to the minutes of the Federal Reserve’s September policy meeting, the central bank will begin tapering its crisis-era economic relief in mid-November or mid-December. However, sentiments remain divided as to how much of a threat high inflation poses, and how soon it will be necessary to raise interest rates in response.
The inflation data released on Wednesday showed that higher price pressures were not transitory but persistent, and the expectations of increased interest rates sooner than anticipated rose amid these fears. This sustained the support for the yellow metal on Wednesday.
Dovish Minutes of the FOMC Meeting Trigger a Bullish Trend in Gold
The participants at the FOMC meeting believe that inflation risks could continue longer than expected, especially if labour and other supply shortages are more persistent than anticipated. Many participants think that the standard of substantial further progress has been met concerning the committee’s price-stability goal, and tapering should begin now.
The participants expressed concerns that a high degree of accommodation provided by the monetary policy, including asset purchases, could increase financial stability risks.
Other participants indicated that the substantial further progress target was yet to be met. This divided sentiment keeps the uncertainty relating to tapering and interest rate hikes higher, which, in turn, supports the safe-haven yellow metal.
Gold (XAU/USD) Price Forecast – US Inflation concerns & FOMC minutes in play
- The precious metal, gold, is currently trading at $1,788 per ounce, and the market has entered the overbought zone
- On the 4-hour timeframe, the RSI for gold was above 80, demonstrating that gold is overbought. However, it has started coming out of that zone now, and this is likely to trigger a bearish retracement in gold
- On the lower side, immediate support for gold prevails at the 1,782 level. A breakout below the 1,782 level could trigger a sell-off until the 1,774 and 1,768 levels
- On the higher side, the next resistance for gold remains at 1,798 and 1,806
- On Thursday, we can expect a bearish correction in gold, especially below the 1,796 level. Thus, we should consider selling below 1,796 and vice versa. Good luck!