Gold Eyes Key Resistance With Fed Bets in Focus as CPI Nears

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Gold, XAU/USD, Treasury Yields, Fed Rate Hike Bets, CPI – Talking Points

  • Gold may continue post-BoE rise as Treasury yields scale back
  • US inflation data key potential risk driver for yellow metal prices
  • XAU/USD eyes bullish SMA crossover as major resistance looms

Gold prices moved higher overnight as markets weighed interest rate bets. Prices broke above the high-profile 1800 level last week after the Bank of England surprised markets by holding rates steady. Analysts and market-based measures predicted a high chance for a rate hike from the BoE. That challenged the broader market narrative across other central banks and weighed on Treasury yields in the United States.

The 10-year Treasury yield climbed overnight but failed to break above the 1.5% mark – a psychological level. The closely watched rate is fell through the Tuesday Asia-Pacific session, allowing gold to climb. Federal Reserve rate hike bets shifted to the right last week, with rate traders pricing in a less aggressive policy path. The chance for a 25 basis point hike at the June 2022 FOMC meeting fell to 45.5% on Tuesday, down from 47.4% a week ago. That was despite a better-than-expected jobs report.

The Fed’s outlook is a key variable for rate-sensitive gold prices. That said, traders are focused on US inflation data due out later this week. Fed Chair Powell maintains that rising price pressures remain transitory but conceded recently that inflation has been stickier than first thought. A couple of additional months of hot inflation prints may pull rate hike bets forward, however.

The October consumer price index (CPI) will cross the wires Wednesday. Analysts expect inflation to rise 5.8% on a year-over-year basis following the 5.4% rise in September. Core inflation – which strips out volatile food and energy prices – is expected to drop at 4.3%, according to a Bloomberg survey, up from 4.0%. While a hotter-than-expected print may help boost rate hike bets, it will likely take multiple prints to significantly ramp up those bets to where they would force Treasury yields to accelerate higher. Nonetheless, a figure north of 4.3% may weigh on the yellow metal.

Gold Technical Forecast

XAU/USD prices have been on the move higher this month, with major resistance around the 1830 level. A recent crossover between the 20- and 50-day Simple Moving Averages (SMAs) saw prices rally following the bullish signal. If XAU bulls can’t breach the 1830 level, a pullback to the rising 20-day SMA may be on the cards. Psychological resistance around 1800 is a possible downside target.

Gold Daily Chart

gold chart

Chart created with TradingView

— Written by Thomas Westwater, Analyst for DailyFX.com

To contact Thomas, use the comments section below or @FxWestwater on Twitter

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