Gold (XAU/USD) Analysis

CPI, USD and yields drive gold prices higherGold breakout attempt – bullish continuation in focusCurrent levels of gold volatility may be insufficient to extend gold gainsGold market trading involves a thorough understanding of the fundamental factors that determine gold prices like demand and supply, as well as the effect of geopolitical tensions and war. Find out how to trade the safe haven metal by reading our comprehensive guide:

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CPI, the Dollar, and US Yields Drive Gold Prices Higher

US CPI always has the power to propel markets given the amount of media attention and recent struggles as price pressures have accelerated over the past two months. It was, therefore, a relief to many when monthly CPI dropped form a prior 0.4% to 0.3% and both headline and core measures printed lower (but in line with estimates) too.

The dollar – measured by the US dollar basket (DXY) – immediately sold off, allowing gold to rise in the aftermath. The precious metal is viewed more favourably when interest rates are expected to come down as it means the opportunity cost of holding the non-interest bearing asset is lowered. US Treasury yields were seen sharply lower, adding to the positive catalyst for gold

US Dollar Basket (DXY) 2-Hour Chart

Gold Breakout Attempt – Bullish Continuation Plays in Focus

Gold prices appear likely to test the all-time high should the current bullish impetus evolve into a more sustained push higher. Gold received a boost from softer CPI data and a more dovish adjustment in interest rate expectations as the market prices in two full rate cuts by year end.

The precious metal had broadly been seen easing – trading within a bearish channel – until CPI proved the catalyst for potential bullish continuation. Yesterday’s daily candle managed to close above trendline resistance (upper bound of the channel) in a move that signals a reinvigoration of the longer-term bull trend.

Key observations from here include a potential retest of the prior resistance, now support, as this is so often the case with breakouts. Such an approach also provides a prudent way to handle breakouts while avoiding a false breakout which can trap unsuspecting traders. Look for the $2360 mark to hold (the 1.618% Fibonacci extension of the 2020 – 2022 major decline). This represents a level of confluence resistance as it coincides roughly with the prior resistance trendline.

Gold (XAU/USD) Daily Chart

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Gold Volatility Lifts but More is Required for an Extended Move in the Metal

Gold prices tend to rise in volatile environments more often than not and can be influenced by nervousness or a general risk off environment. Therefore, the mere prospect of lower interest rates, while supportive of higher prices, can prove insufficient to produce a long-lasting push higher.

Of course any material weakness in the US economy or jobs market may lead to more aggressive rate cut expectations but as things stand now, longer-lasting bullish momentum remains to be seen.

Gold Volatility Index (GVZ)