Gold Price Rally Eyes September High with US Yields Under Pressure

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Gold Price Talking Points

The price of gold pushes to a fresh monthly high ($1825) as it extends the advance following the US Non-Farm Payrolls (NFP) report, and the precious metal may continue to retrace the decline from the September high ($1834) as the 10-Year US Treasury yield holds near the monthly low (1.44%).

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Gold Price Rally Eyes September High with US Yields Under Pressure

The price of gold takes out the October high ($1814) as it extends the recent series of higher highs and lows from the previous week, and it remains to be seen if fresh data prints coming out of the US will influence the precious metal amid signs of sticky inflation.

Image of DailyFX Economic Calendar for US

The Producer Price Index (PPI) is projected to increase 0.6% in October after expanding 0.5% the month prior, while the headline reading for the Consumer Price Index (CPI) is seen widening to 5.8% from 5.4% per annum in September, which would mark the highest reading since December 1990.

At the same time, the core reading for inflation is anticipated to increase to 4.3% from 4.0% during the same period, and indications of stronger price growth may lift longer-dated US yields as it put pressure on the Federal Reserve to implement a rate hike sooner rather than later.

In turn, the price of gold may face headwinds as it seems to be losing its appeal as a hedge against inflation, but current market conditions may keep the precious metal afloat as the Federal Open Market Committee (FOMC) carries out a gradual approach in removing monetary support.

With that said, recent price action raises the scope for higher gold prices as bullion clears the opening range for November, and the price of gold may continue to retrace the decline from the September high ($1834) as long as US yields remain under pressure.

Gold Price Daily Chart

Image of Gold price daily chart

Source: Trading View

  • Keep in mind, the negative slope in the 200-Day SMA ($1790) indicates that the broader trend for the price of gold remains tilted to the downside, with a ‘death cross’ formation taking shape in August as the Relative Strength Index (RSI) pushed into oversold territory.
  • However, lack of momentum to test the March low ($1677) generated a textbook RSI buy signal as the oscillator climbed back above 30, with the rebound from the August low ($1682) keeping the price of gold within a defined range amid the string of failed attempts to break/close above the Fibonacci overlap around $1837 (38.2% retracement) to $1847 (100% expansion).
  • Recent price action raises the scope for a test of the September high ($1834) as the price of gold extends the series of higher highs and lows from the monthly low ($1759), but another failed attempt to break/close above the overlap around $1837 (38.2% retracement) to $1847 (100% expansion) may push bullion back towards the 200-Day SMA ($1790), with a break/close below the $1786 (38.2% expansion) region opening up the$1743 (23.6% expansion) to $1763 (50% retracement) area.

— Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong

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