Gold Jumps Close to One-Week Peak on U.S. CPI Data

Gold Breakout

Gold prices climbed to near a one-week peak crest on softer U.S. dollar and Treasury yields. The greenback fell to a two-month low after the release of high inflation data. It made the bullion less expensive and more attractive to investors using rival currencies. The benchmark 10-year slipped from two-year highs reached earlier this week. It lowered the opportunity cost of owning the non-interest-bearing metal and boosted its appeal as an inflation hedge.

Spot gold is currently trading at $1,826.67 per ounce as of 0810 GMT.

Higher inflation data also lifted gold prices. The U.S. Labor Department reported yesterday that consumer prices increased by 0.5% in December, and core CPI rose by 0.4% for the third straight month. In the 12 months through December, the CPI soared to 7.0. That is the highest annual increase since June 1982 and followed a 6.8% year-on-year rise in November. The inflation rate is already well above the Federal Reserve’s 2% target.

In a recent congressional hearing, Fed Chief Jerome Powell said the central bank was ready to do whatever was necessary to keep high inflation from becoming entrenched. He also argued that ending the Fed’s asset purchases and the turn to higher interest rates policy were needed to maintain the current economic expansion. Powell added that if prices continue to increase, the Fed might raise interest rates higher than the expected three-quarter percentage point hikes.

Stephen Innes, the managing partner of SPI Asset Management, said there is currently little window for gold prices to go higher. He suggested that the bullion could either enter a seasonal recovery or stay flat due to rate hikes. It would take a convincing walk back from the Fed narrative for gold to move out of its current trading range, he added.

On the technical front, DailyFX strategist Michael Boutros noted that gold is trading within the confined of an ascending pitchfork formation that extended off the November/December low. He also contended that the recent changes in the IG Client Sentiment Index suggest that the current gold price trend might soon reverse though more traders remain net-long. Boutros advised traders to reduce long exposure or raise protective stops on a stretch towards $1,829 per ounce.

His fellow DailyFX strategist Daniel McCarthy added that the movement in gold prices depends on changes in inflation expectations rather the current inflation level. He sees resistance levels at $1,829.68, $1,831.65 and $1,877.15. On the downside, he sees support at $1,778.50, $1,761.99, $1,758.93, $1,753.10 and $1,721.71.