Gold Prices Fall on Stronger Dollar; Investors Focus on U.S. Inflation Data

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Gold prices edged lower on Wednesday as the U.S. dollar strengthened. The greenback rose 0.1% and made the yellow metal more expensive for investors using rival currencies. Meanwhile, investors shifted their focus on the U.S. Consumer Price Index (CPI) report to be released later today. Economists predicted a 5.8% increase in CPI because of the tight labor market and global supply chain problems.

Spot gold is currently trading at $1,826.42 per ounce as of 0840 GMT.

Harshal Barot, a senior research consultant at Metals Focus, predicted profit-taking if the CPI figures come higher than consensus. It is because it will raise expectations that the Federal Reserve will raise interest rates to control inflation. He sees the resistance level at $1,830.

Two of the most dovish Feds policymakers said a rate hike was still not on the cards. San Francisco Federal Reserve Bank President Mary Daly said raising interest rates too soon will do little to lower prices but significantly reduce the pace of job gains. She wanted to wait and see if inflation fades when the pandemic is over.

Minneapolis Federal Reserve Bank President Neel Kashkari wanted to wait for three to nine months to get more clarity and information on the economy. He also wanted to see if the millions of Americans who left the workforce during the pandemic would return. Yesterday, Fed Chair Jerome Powell said they look at a wide range of indicators when assessing whether the U.S. has achieved maximum employment.

On the technical front, DailyFX senior strategist Christopher Vecchio predicted a bullish outlook for gold. The metal climbed past the key resistance level at $1,810. If it breaches the $1,835 zone, then it would enter into bullish breakout territory. But he does not expect gold to clear that technical hurdle in November.

Vecchio noted that the weekly technical structure of gold prices has shifted to a bullish directional bias. The weekly slow stochastics entered the overbought-territory. The weekly moving average convergence divergence is rising above its signal line. And the weekly exponential moving average (EMA) envelope has taken a positive tilt.

He also mentioned that bullion prices have a positive relationship with volatility. And gold’s recent rising volatility coincided with higher prices. Vecchio considered this a promising near-term development. He also mentioned that the IG Client Sentiment Index indicates a bullish bias for the yellow metal in the near term.