Gold on Fire, US Inflation Figures Boost Inflation Hedged Gold Demand
Arslan Butt • 3 min read
Gold prices were closed at $1850.60 after placing a high of $1870.35 and a low of $1824.05. XAU/USD extended its gains for the fifth consecutive session on Wednesday and reached its highest level since mid-June despite the strength of the US dollar. The US Dollar Index that measures the greenback’s value against the basket of six major currencies broke its bearish streak of three days and turned positive on Wednesday, soaring to its highest level since mid-July 2020 at 94.90 level.
The US Treasury Yields on the benchmark 10-year note also surged on the day and reached as high as 1.59%. The rising US dollar index and the Treasury Yields provided extra strength to the greenback, which ultimately weighed on the precious metal and took half of its daily gains.
The US dollar was getting strength from the release of the US Consumer Price report that revealed the fastest growth in the CPI since November 1990. This acceleration was pushed mainly by the high fuel prices, running at seven-year highs. The US Labor Department showed that the consumer price index, representing a basket of products ranging from healthcare and gasoline to rents and groceries, surged 6.2% YoY in October.
US Inflation Figures in Play
Gold has long been regarded as an inflation hedge, and the CPI report released on Wednesday indicated that inflation could remain uncomfortably high well into 2022, owing to clogged global supply chains. This helped gold gather strength against the US dollar, and the yellow metal kept its bullish rally for the fifth consecutive session, achieving its longest positive streak since the first week of July when the market remained in an upward trend for seven days.
The surprising thing about the market on Wednesday was that gold continued moving upward despite the yields on the US 10-year Treasury Note rising by about 6% on the day. Treasury Gold continued moving higher for the day as yields are considered a key indicator of real interest rates that usually negatively correlate with bullion. Markets were surprised as the yield rally should have depressed bullion, but gold continued moving higher for the day. It was mainly because inflation hit a 30-year high level, which was music to gold traders’ ears as gold is often used to hedge against inflation.
CPI in October Rose to 0.9% Against an Estimated 0.6%
On the data front, at 18:30 GMT, the CPI in October rose to 0.9% against an estimated 0.6% and supported the US dollar, which ultimately capped further gains in precious metals. The core CPI also surged to 0.6% against the forecast 0.4% and supported the US dollar, limiting gold prices. Last week’s increase in unemployment claims to 267K, versus the expected 257K, weighed on the US dollar, pushing gold prices higher. At 20:00 GMT, the final wholesale inventories also rose to 1.4% against the predicted 1.1% and weighed on the US dollar, which lifted gold higher on board.
Meanwhile, San Francisco Federal Reserve President Mary Daly said that she expects high inflation to moderate once COVID-19 recedes. She also repeated that it would be quite premature to raise interest rates now or even speed up the Fed’s bond-buying taper. These comments also helped bullion increase its bullish momentum and reach its highest level since mid-June on Wednesday.
Gold Soars to $1,849 Amid Stronger US Inflation Figures
Gold is trading at the 1,848 level, facing strong resistance at the 1,856 level. On the 4-hour timeframe, XAU/USD is trading with a bullish bias, maintaining an upward channel. A break above the 1,856 level could lead GOLD towards the next resistance level of 1,869.
Daily Technical Levels
Pivot Point: 1848.33
Conversely, the support level stays at the 1,844 level, and the violation of this level exposes the metal towards the 1,831 level. The RSI and stochastic are in an overbought zone, and the closing of candles below the 1,833 level exposes the metal price towards the 1,821 level. Let’s consider taking a buy trade above 1,844 and selling below the same. Good luck!