Key Focus of the Week in the Gold Market: US CPI Data

Key Focus of the Week in the Gold Market: US CPI Data
Published on: Oct 8, 2024

On Monday morning, gold prices remained stable, continuing last week’s lukewarm performance. The direction of the gold market is currently unclear, but technically, gold is in an overbought state, suggesting a potential need for a pullback. Despite the recent strong performance of the US dollar, geopolitical tensions continue to support gold prices.

Consequently, the US inflation data to be released later this week might determine the direction of gold prices.

Review of Last Week in the Gold Market

Gold prices ended a streak of three consecutive weekly gains. Last Friday, strong US employment data pushed gold prices down, before dip buyers stepped in and later took profit ahead of the weekend.

The US non-farm payroll report unexpectedly exceeded expectations, adding 254,000 jobs and revising the previous month’s data upwards, placing the Federal Reserve in a dilemma. Fed Chair Jerome Powell had already dismissed the possibility of another 50 basis point rate cut days before the data release. It now seems almost certain that there will be no further aggressive rate cuts this year.

Implications for Gold

If the Fed becomes more cautious rather than maintaining a steady pace of rate cuts, gold could face pressure in the coming weeks. However, because geopolitical risks add uncertainty to the market, the potential downside might be limited.

Technical Perspective

From a long-term chart perspective, gold appears to be in a profit-taking phase. Historically, when the Relative Strength Index (RSI) exceeds 70 (currently the monthly RSI is above 80, indicating extreme overbought levels), the market typically undergoes a period of consolidation or selling pressure. However, despite the RSI suggesting a possible pullback, this is not a sell signal, and gold remains on a strong upward trend.

Key Focus of the Week: US CPI Data

On Thursday, the US will release the September Consumer Price Index (CPI) report, with inflation expected to drop from 2.5% in August to 2.3%. If the inflation data is weaker than expected, it could incite a dovish market sentiment, potentially further boosting gold prices.

Following this, the University of Michigan Consumer Confidence Report will be released on Friday, providing insights into public economic perceptions.

The Fed has two main missions: “maximum employment” and “price stability,” aiming to curb inflation while achieving sustainable maximum employment. However, there is an inherent conflict between these two objectives, requiring the Fed to strike a delicate balance. Last week’s non-farm payroll report showed a strong job market and economy, and this week’s CPI data will reveal price trends.

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