- Gold is under pressure as the US dollar continues to hit highs.
- US CPI leaves the door open for aggressive Fed tightening.
Price gold was under pressure on Tuesday, down more than 1.3% on the day. At the time of writing, the yellow metal is testing the $1,700 level and has so far hit a low of $1,697.11. Consumer prices slightly beat expectations, with core inflation rising amid rising rent and health care costs, according to a Labor Department report.
That sent both US dollar yields and bond yields soaring as the Federal Reserve expected an outsized rate hike. Inflation in the United States ran at an annualized rate of 8.3% in August, ahead of expectations for an increase of 8.0%. Traders expect 75 basis points when its policy committee meets next week and lower market hopes for a smaller increase. However, there is a one-in-five chance that the Fed will raise rates by a full percentage point, from zero the day before the CPI report, according to FEDWATCH.
Both the dollar and bond yields rose after the data release, with higher interest rates expected to be on the way, bearish on gold as it offers no yield. The DXY index, a gauge between the U.S. dollar and a basket of currencies, rose to a high of 109.853, while the yield on the U.S. 10-year note rose to 3.460%, up more than 1.8% on the day.
“While prices are weak, precious metals price action is still not in line with their historical performance as tourist cycles enter a restrictive rate regime,” explained analysts at TD Securities. ”We expect continued outflows from money managers and ETF holdings to weigh on prices, ultimately increasing pressure on a small number of family offices and proprietary shops to capitulate on their complacent gold lengths.”
Technical analysis of gold
The bulls have been stripped of their momentum and the focus is back on the downside, while below the neckline of the daily M-formation, as follows:
Zooming out, we can see that the negative target has been a key level for quite some time: