Investors Are Anticipating the CPI Report and Its Potential Impact on Gold Prices.

Investors Wait for CPI

With less than 24 hours before the next inflation report is released market participants are waiting for the release of the CPI inflation report for January. On February 14 at 8:30 EST the BLS will release the US CPI data for last month.

Current projections from economists polled by the Wall Street Journal are expecting tomorrow’s CPI report to reveal that inflation increased by 0.4% month over month in January. However, Jeff Wright CIO at Wolfpack capital is projecting a 0.5% increase month over month and a 6.2% year-over-year reading. This is primarily due to the recent revision of the inflation report for December.

The latest revision to the December CPI report revealed that inflation rose rather than diminished as reported. This revision has created doubt that inflation has peaked an indication that inflation remains much more persistent than the Federal Reserve’s current narrative.

On Thursday the government will release its PPI (Producer Price Index). The combination of both reports will certainly be used by the Federal Reserve as it weighs its next steps at the next federal open market committee meeting (FOMC) on March 15 – 16.

Gold has been in a defined correction as expectations of continued Federal Reserve tightening including rate hikes have increased the yield on treasuries and been supportive of the US dollar. Recently the Federal Reserve suggested that their target rate reported in December of 5.1% might need to be raised to as high as 6%.

Last week Chairman Powell expressed concern about the possibility of inflation based on the extremely robust January jobs report. Higher employment can easily lead to paying employees more and adding to the level of inflation.

Gold Technical Analysis

On a technical basis, gold broke through potential support at the 38.2% Fibonacci retracement level which is considered an acceptable but shallow correction. If gold prices continue to drop the next strong potential support level is the 50% retracement which occurs at $1845.

Currently, today’s intraday low in April gold futures matched the 50-day moving average which is currently fixed at $1861.20 making the first level of technical support come in at $1861.

As of 4:50 PM EST, the most active April gold futures contract is down by $10.30 and fixed at $1864.20. Additionally, the dollar lost value today lessening gold’s decline. Currently, the dollar index is down 0.33% and fixed at 103.19.

The elevated hawkish tone reflecting expected actions by the Federal Reserve has pressured gold and silver prices lower and supported treasury yields and the dollar. Tomorrow’s report will indicate whether or not that trend will continue. If it does, we can expect to see a further decline in gold prices.

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Wishing you as always good trading,

Gary S. Wagner