Gold prices hit a fork in the CPI road

The performance of gold is mostly associated with the strength of the US dollar and yields of long-term bonds in both the US and other major economies. The strong labor market in January and stronger-than-expected CPI boosted the US dollar and bond yields started to grow again.

That pressured gold, driving it to the intermediate-term low of around $1805. Later gold retraced back to the $1840 area in response to the expected tightening of monetary policy.

Softer-than-expected data from US PMI supported commodity markets, including gold, especially as the US dollar seems to be taking a break. The market discounts two points of rising rate until May 2023 and the probability of a third point of rising is concentrated at around 30%, so that might be a point of interest when hunting for an entry point.

Traders should monitor for publications of non-manufacturing PMI on Friday, as well as next week’s numbers from the labor market.

Technical view:

From a technical point of view, there are two potential scenarios now. A price fall assumes strong economic publications (PMI and NFP numbers) and further strengthening of the US dollar. A rise scenario might happen in a case of a mild drawdown of macroeconomic data and a less hawkish FED.

As always, it is strongly suggested that you make your own technical analysis on the day you choose to trade. Moving Averages, Oscillators, and Pivots are common indicators used by gold traders, but always make sure there are no upcoming fundamentals that will affect the technical forecast.

This is not investment advice. Past performance is not an indication of future results. Your capital is at risk, please trade responsibly.

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Author:

Paul Reid

Paul Reid is a financial journalist dedicated to uncovering hidden fundamental connections that can give traders an advantage. Focusing primarily on the stock market, Paul's instincts for identifying major company shifts is well established from following the financial markets for over a decade.