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- Gold is pressured as the US dollar continues to make highs.
- The US CPI leaves the door open for aggressive tightening by the Fed.
The price of gold was pressured on Tuesday and has fallen by over 1.3% on the day. At the time of writing, the yellow metal is testing the $1,700 level and has reached a low of $1,697.11 so far on the day. Consumer prices handily beat expectations according to the Labor Department report, underlying inflation picked up amid rising costs for rents and healthcare.
This sent both the US dollar and bond yields sharply higher as the expectations for an oversized rate hike from the Federal Reserve. Inflation in the United States ran at an 8.3% annualized pace in August, ahead of expectations for an 8.0% rise. Traders expect 75 basis points when its policy committee meets next week and lower market hopes for a smaller increase. However, there is a one-in-five chance that the Fed will raise rates by a full percentage point, up from zero a day before the CPI report according to FEDWATCH.
The dollar and bond yields both rose following the release of the data, on expectations higher interest rates are on the way, bearish for gold since it offers no yield. The DXY index, a measure of the US dollar vs. a basket of currencies rallied to a high of 109.853 while the yield on the US 10-year note rose to 3.460%, over 1.8% higher on the day.
”While prices are weak, precious metals’ price action is still not consistent with their historical performance when hiking cycles enter into a restrictive rates regime,” analysts at TD Securities explained. ”We expect continued outflows from money managers and ETF holdings to weigh on prices, which will ultimately raise the pressure on a small number of family offices and proprietary trading shops to capitulate on their complacent length in gold.”
Gold technical analysis
The bulls have been stripped of their moment and the focus is back on the downside while below the neckline of the daily M-formation, as follows:
Zooming out, we can see that the downside target has been a key level for a considerable amount of time:
