Gold Inches Higher on Soft Dollar and U.S. Yields; Investors Focus on CPI Report

Gold Price Breakout

Gold prices advanced on Wednesday on a weaker dollar and lower U.S. bond yields. The greenback fell 0.2% and boosted the metal’s appeal to investors using rival currencies. The benchmark 10-year and 30-year Treasury yields pulled back from a one-week peak hit yesterday. It lowered the opportunity cost of holding the non-interest-bearing bullion. Meanwhile, market participants shifted their focus on the U.S. Consumer Price Index (CPI) report. The data could influence the Federal Reserve’s decision in its December policy meeting.

Spot gold is currently trading at $1,789.60 per ounce as of 0815 GMT.

The bullion also got a boost from the tension between the U.S. and Russia. President Joe Biden warned Vladimir Putin that the West would impose “strong economic and other measures” if Russia invades Ukraine. Gold is a safe-haven asset that benefits from political and economic uncertainty.

Stephen Innes, the managing partner at SPI Asset Management, commented that the geopolitical tension is driving only a minimal increase in gold prices. He suggested that a breach of the $1,770-$1,810 range depends on the Fed’s policy decision.

ANZ analysts predicted gold prices to remain around $1,800 per ounce in the first half of 2022. But the rate hikes in mid-2022 will push prices down. They also expect the bullion to drop to $1,600 by the end of this year.

On the technical front, DailyFX senior strategist Christopher Vecchio said gold prices lost their bullish technical formation and are clinging onto trendline support from the swing lows from August and September. He said bullion prices’ weekly technical structure is becoming more directionally bearish. Slow Stochastics are dropping through the median line, and MACD is on the verge of falling below its signal line. Gold prices have also fallen below the weekly 4-, 13- and 26-EMA envelopes, which indicate a bearish sequential order.

Vecchio also said that the yellow metal had lost its most potent catalyst in recent months: low U.S. real yields. Though inflation might remain elevated until next year, the Fed is determined to address it. And its strategy is quicker tapering and sooner-than-expected rate hikes. These will likely prevent any gold price rally. He also mentioned that the IG Client Sentiment Index indicates a mixed bias for bullion prices in the near term.