Precious metals surged notably on Tuesday, buoyed by the weaker-than-expected US inflation. At the time of writing, gold was 0.6% stronger, rising above 1,800 USD, while silver was seen marching toward the 24 USD level again.
Inflation remains elevated
Today, traders focused on the key US inflation report, which came out weaker than expected and undermined the greenback, sending precious metals higher. The yearly inflation printed 5.3%, while the month-on-month change decelerated slightly to 0.3%, from 0.5% previously. That is the 15th straight monthly rise in consumer prices and the fourth consecutive month above 5% yearly. Core CPI slowed to 4.0% year-over-year, down from 4.3% in July. Analysts had expected 4.2%.
Analysts at Wells Fargo said in a note after the report.
As previously said, the USD got dumped after the report, as the declining core inflation might lead to a more dovish Fed, possibly delaying its tapering decision. As of now, the market expects the taper to start in November or December.
Fed in focus next week
Next Wednesday, the Fed’s meeting will take center attention as the Fed should communicate if it wants to start scaling back asset purchases in November . If it does not communicate anything related to tapering, gold might soar above 1,900 USD. However, judging from the recent weakness in economic data, the Fed could wait for more progress in the labor market (or economic data in general) before starting to scale back asset purchases.
For now, it looks like some parts of inflation might be transitory, but most of the prices will likely remain higher for a long time. As a result, the longer inflation remains elevated, the more likely it is to become permanent.
Gold jumps above 50-day moving average
Technically speaking, it is still a mess. The medium-term trend is still unclear, but gold could start some short-term bullish momentum if it closes above its 50-day moving average at 1,800 USD. The next target will most likely lay at 1,820 USD, followed by a firm selling zone near 1,835 USD.
Alternatively, if sentiment deteriorates and gold starts to decline again, the support is seen at last week’s and today’s lows in the 1,785 USD area.
As long as the greenback continues to be sold, amid the tapering uncertainty, gold should benefit from it. Lastly, the 10-year US yield failed to start any bullish movement, and it was down sharply today, trading below 1.3% again. Falling US yields tend to be bullish for precious metals, currently supporting the short-term uptrend.