Gold (XAU/USD) is poised to finish the week with losses of nearly 4.50%, yet it is up 0.14% on Friday as the US Dollar (USD) caps its advance, following a hot US inflation report on the producer side. At the time of writing, XAU/USD trades at $3,879, near 13-month lows.
Bullion collapses nearly 4.5% as US inflation cements the Fed’s case for a rate increase
Overall, US inflation data this week has increased the chances that the Federal Reserve (Fed) will raise interest rates at its December meeting. Earlier, the release of the Producer Price Index (PPI) for October showed that headline PPI jumped 6.5% YoY, below forecasts but above September’s 6.3% print, largely due to higher transportation and warehousing prices. Core PPI, which excludes items like food and energy, was unchanged from the previous month at 5%, in line with estimates.
This, along with the release of the US Consumer Price Index (CPI) on Tuesday, prompted a reaction from most Fed officials, with many speakers this week expecting higher interest rates and noting that financial conditions are not restrictive.
On Friday, San Francisco Fed Mary Daly said she sees more rate hikes as firms seek to pass higher costs, while Boston Fed Susan Collins warned that inflation is spreading, warranting additional rate increases. Earlier, Chicago Fed Austan Goolsbee warned that inflation data suggest the situation is worsening, which “would make the Fed more aggressive.”
US Treasury yields continued to rise during the week, an indication that market players expect higher rates. The US 10-year Treasury yield is up almost two basis points at 5.15%, a tailwind for the Greenback.
The US Dollar Index (DXY), which measures the performance of the American currency against six others, is up 0.23% at 103.41, after refreshing a 19-month high of 103.42.
Markets priced in a nearly 90% chance of a 25-basis-point Fed hike in December, with a 10% chance of a 50-point increase, according to CME FedWatch.
Next week, Gold traders are looking for the release of the Federal Open Market Committee meeting minutes, Retail Sales data and speeches by Fed officials.
XAU/USD technical outlook: Gold extends its losses beneath $3,900
After its weekly decline, Gold appears to have bottomed near $3,873, slightly above the day's low of $3,867. Despite this, further weakness lies ahead. The market structure of consecutive lower highs and lower lows has extended, which puts into play a test of the year-to-date low of $3,852. A breach of the latter will expose the $3,800 psychological level, followed by the April 22, 2025, swing high-turned-support at $3,500.
On the other hand, the first resistance is $3,900. If Gold breaches that area, a move towards Thursday’s high of the day at $4,000 is on the cards. The next stop is $4,100, ahead of the confluence of the 50-day Simple Moving Average (SMA) at $4,154 and the 100-day SMA at $4,196.
Gold daily chart
Comments
Log in or sign up to join the conversation.