Is U.S. inflation going to change the trend of Gold?

Inflation data are lower than expected

Wednesday’s inflation data from the USA delivered surprising numbers. The consumer price index YoY is 8.5%, which is lower than the expected 8.7% and previous 9.1%. Inflation was lower in both measurements Year to Year and Month to Month time period. Moreover, core inflation, which is more reliable for Fed decisions making is lower as well. Data poured optimism into the markets, which are in green territory. 

The main interpretation is that lower inflation could ease the pressure on the Fed’s monetary policy in the matter of rising interest rates. This means that an aggressive rate hike does not have to be on the table. Despite this, the yellow metal ended that day in red numbers. The immediate reaction was very positive and gold broke above the 1800$ level (FX spot). But after that, the price ended at 1792$. 

Read more: Dollar index consolidates ahead of inflation data

Strong psychological level

Technically, gold tests a strong psychological level at 1800$ (FX spot). This week, the price tried to settle above this level, but none of these attempts was successful. Futures volume is rising and confirmation of breaking this resistance will open the window to the 1900$ level. 

30 minutes chart of XAU/USD (Gold Spot). Resistance at the level 1800$. Source: tradingview.com

Volume on the futures shows that the biggest traded volume this year is in the area of 1820$-1900$. This volume was created in the downtrend of gold in the past months. We informed you about this area several times between May and June. Now the price of yellow metal is rising back to the support which stopped the downtrend before. 

4 hours chart of GC (Gold Futures), Market Profile of yearly volume. Source: Author’s analysis

Is U.S. inflation data going to change the trend of Gold?

From the fundamental side, the gold appreciation could be more favorable. Lower inflation could have an impact on less aggressive monetary policy. The highest traded volume this year is at the level of 1850$ (GC), which could work as a magnet for fulfilling orders. And it is needed to break and confirm the 1800$ (FX) level. BUT, there is still a recession and slowdown in the global economy. Despite the lower inflation released in August, hard data are more negative than the hopes of the market. Volatility persists and any small sign of change in fundaments could spark enormous market activity on both sides.