Gold Loses Some Sheen as Hawkish Fed Outweighs Softer Inflation

It’s been difficult for Gold to keep its bullish movement even though inflation data supporting the view that the Fed’s rate hikes are slow. Perhaps a bit of base and stability is needed for gold to gear up for a clean breakout above $1800.

After the soft CPI data and today’s weaker than as it was expected PPI data added to the belief that inflation has reached it’s peak. As a result, US stocks initially expand their gains to three-month highs, before easing back.

Investors are betting that softening inflation will allow the Fed to increase interest rates less aggressively. We can also see bond yields rise with the 10-year breaking the high of 2.816%, with production rise with the 10 year breaking Wednesdays high of 2.816%, with the production in Europe also rising. This kept a cover on Gold and Silver, however the dollar did dell against most of the currencies-especially those risk sensitive commodity dollars.

Investors of Gold will be keeping a close eye on bond production. For as long as they don’t rise too much then we should see the metal start continue to shine as it has done over the past 3 weeks.

Rebound in the production of bonds underscores uncertainty about the future path of inflation and interest rates. A couple of Fed officials have already said the Fed wants to see more evidence that inflation is on a down path. With odds of 75 basis point hike having dropped, the Fed is careful not to push too hard against that, but at the same time leave the door open for such an aggressive hike should incoming data from now until mid-September show another upsurge in prices or if employment once again probes to be very hot.

Gold needs to hold above the 50-day average now after successfully breaking out above the bearish channel. What the bulls need now is to capture $1800 on a closing basis. If and when this condition is met, Gold is then likely to find follow-up technical buying interest towards the 200-day average around $1842.