At the time of this writing in the afternoon New York session on Tuesday, the gold price is up approximately 0.35%. Gold is currently trading at $1,795.55, barely below the day’s highs. From a low of $1,783.31, gold has risen to the psychological $1,800 level at the opening of Wall Street.
Due to a weaker U.S. dollar at the start of the week, gold is strong. The U.S. dollar, as measured by the DXY index, dropped to a low of 105.97, erasing all of the gains recorded following the release of the Nonfarm Payrolls report, when it surged to a high of 106.93.
In addition, lower US yields provide some assistance for gold. Declining yields are favorable for gold because it does not pay interest. On Tuesday, the US 10-year note reached a new corrective low of 2.746%, but it has since rebounded to a high of 2.816%. Yields are however much below their 52-week range peak of 3.497% seen in mid-June 2022.
The markets are transfixed on Wednesday’s US inflation statistics, where prices are projected to have increased by a level that will lead the Federal Reserve to increase interest rates further. In addition to the NFP report from last week, the Fed is projected to increase interest rates by 75 basis points at its September meeting.
“While a slowing headline reading could lead some investors to believe the Fed can stop hiking, we expect the Fed to take rates to 3.75 percent by December,” analysts at TD Securities argued, given that the consensus is that CPI will have risen less in July compared to what June’s reading showed, 9.1 percent vs. 8.8 percent expected, whereas tomorrow’s data is expected to be below 9 percent.
Historical data chart
TD Securities analysts stated, “The market must evaluate whether the slowing headline is more relevant than the sticky and solid core.” The USD remains susceptible to US data surprises.
Consequently, the data will be a driver for gold. A stronger-than-anticipated reading could be the impetus for a final shakeout of obstinate and stale shorts in the volatility prior to the next substantial move to the south. On the other side, a deeper bullish correction in gold prices would be anticipated if the US dollar were to decline in response to a lower reading.
TD Securities analysts say that gold prices are “toying with the barrier for CTA short covering, but have thus far failed to sustainably break through critical trigger levels linked with a substantial purchasing program, which could indicate educated participants on the offer”
“Meanwhile, prop traders continue to retain a significant amount of complacent length, indicating that gold has not yet capitulated,” arguing that the pain trade remains bearish.