March 26, 2023
Gold and US inflation
Hot Forex Review

Gold and US inflation

Bulls will have hard days ahead!

The gold price was in a clear uptrend from November 2022 until last week, when market participants started to believe that Fed tightening policies would continue as inflation concerns again increased. This thought and feeling increased the USD index above the 103 Mark and pushed the gold lower to close around $1,960 last Friday.

After the Fed meeting at the beginning of the month, in the last two weeks, FOMC members, in their speeches, always remain hawkish, emphasizing that lower inflation requires more effort. With today’s published inflation numbers, that can be indeed confirmed. After three months of decreasing, the US CPI rose 0.5% in January. Though annual inflation eased 0.1% from December to 6.4% in January, it was still higher than the 6.2% expectations. January Core CPI was unchanged at 0.4% and in line with expectations, but on an annual scale, it eased 0.1% from 5.7% of the December number.

Producer price data (PPI) on the 16th will help paint a clearer picture of US inflation for the following months and will likely cause another volatility in dollar prices. Considering these data, further rate rises should be expected, and higher interest rates will need to remain high for a more extended than earlier expected period. With these higher inflation numbers, we can now say that market expectations of a dovish pivot are quashed, which means higher USD value and gold prices tumble.

From the technical point of view, as we can see in bellow figure, in the Daily chart, the uptrend is over, and now the price has entered into a clear downtrend. $1,840 is a key support, and breaching under this level can open the doors to the lower level, with the key pivot at $1,800, which is not likely to be breached that easily.

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