Gold: Markets Pause Ahead of US CPI Numbers

In September, inflation came in higher than expected, leading to some caution among policymakers. A cautious Fed tone is bearish for gold prices as it could mean a slow and gradual rate-cutting cycle.

In October, economists expect monthly US CPI figures to match the previous month’s. Therefore, the core CPI might increase by 0.3% while the CPI by 0.2%. Meanwhile, the annual figure might increase by 2.6%, compared to September’s 2.4% increase.

Gold Fundamental Analysis

Gold has collapsed in the past few days as Treasury yields soared after Trump’s election win. His win has changed the outlook for the US economy and inflation. Notably, Trump’s policy changes aim to boost the US economy, translating to higher inflation. A spike in inflation might stop the Fed from cutting borrowing costs, hurting gold prices.

Gold loses its appeal when interest rates are high. Therefore, demand drops and prices decline. Already, markets are repricing expected rate cuts for 2025. The Fed might cut rates less than previously expected. Market participants are now waiting to see whether the Fed will cut rates in December. This will largely depend on October inflation figures.

If inflation is higher than expected, rate-cut expectations will drop, and gold will collapse to new lows. On the other hand, the yellow metal will rebound if inflation is softer than expected. Such an outcome would solidify bets for a December rate cut. Currently, traders are pricing a 69% chance of a rate cut in December.

Gold Technical Analysis

On the technical side, gold is on a developed downtrend on the 4-hour chart. The trend recently reversed when the price reached a new peak. Although bulls made a higher high, the RSI made a lower one, indicating fading momentum.

After that, bears made a series of strong candles that broke below the 22-SMA support and retested it before dropping further. At the same time, the RSI dipped into bearish territory below 50, signaling solid momentum. Since then, the price has made impulsive moves to new lows, with corrective moves pausing at the 22-SMA resistance.

Recently, gold broke below the 2650.69 support level, strengthening the bearish bias. However, the new impulsive move has met a strong hurdle at 2600.15. Price action near this level shows indecision since the candles have made many wicks.

Therefore, traders are likely waiting for a catalyst to decide whether to buy or sell. If inflation is higher than expected, the price might gain enough momentum to breach the support level. On the other hand, if inflation misses forecasts, gold will rebound to retest the 22-SMA or the 2650.69. Nevertheless, given the solid bearish bias, the price might eventually drop to the 2550.36 support level.

On the daily chart, it is clear that there has been a bearish shift in sentiment. The bullish trend paused near the 2780.66 level before bears took charge by breaking below the 22-SMA support.

Before the break, the price had been on a consistent uptrend, respecting the SMA as support. However, bears gained enough momentum to break this pattern and challenge the previous low at 2602.35. A bearish catalyst will allow the price to breach this support and reach the 2450.26 level.

On the other hand, a bullish catalyst will likely lead to a retest of the 22-SMA as resistance. If it holds, the downtrend will remain intact. On the other hand, if the price revisits the 2780.66 level, it might continue the previous bullish trend.

Key Support Levels

Support 1: 2602.35, a recent daily swing low

Support 2: 2600.15, a recent 4-hour swing low

Support 3: 2550.36, a 4-hour swing low

Support 4: 2450.26, a solid daily support and resistance level

Key Resistance Levels

Resistance 1: 2780.66, a recent daily swing high

Resistance 2: 2650.69, a recent 4-hour support turned resistance

Final Thoughts

Gold has had a strong year due to several factors, including rate-cut optimism. However, the outlook for rate cuts has dimmed since Trump won the US presidential election. As a result, the price has pulled back. However, there is still hope that incoming data might support the need for rate cuts in the short term.

Consequently, market participants eagerly await the US consumer inflation report for clues on the December Fed meeting. If inflation is high, there will be more downside for gold. However, if inflation is lower than expected, gold prices might recover from the recent dip. Nevertheless, with Trump as president, gold might suffer in the long run.

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