Gold Trades in a Narrow Range Ahead of U.S. Inflation Data

Gold prices remained subdued on Monday as the U.S. dollar strengthened. The greenback posted a 0.6% weekly gain and made the yellow metal more expensive for investors using rival currencies. Also, market participants are waiting for the U.S. consumer price index report due to be released tomorrow. It is a crucial factor in the Federal Reserve’s tapering decision.

Spot gold is currently trading at $1,789.23 per ounce as of 0835 GMT.

IG Market analyst Kyle Rodda said that if inflation eases, then tapering and interest rate hikes might happen sooner than expected. Gold’s narrow range between $1,760 and $1,830 reflects uncertainty about inflation expectations, economic growth, COVID-19 surge and Fed policy.

Cleveland Federal Reserve Bank President Loretta Mester joined other policymakers in supporting the tapering of asset purchases this year. She said the economy made substantial progress on both employment and inflation. And the weaker-than-expected jobs growth in August would not derail their plans to scale back fiscal support.

Other factors support tapering. One is the producer price index (PPI) for August 2021. The Labor Department reported that PPI rose 0.7% over the previous month. In the 12 months through August, the PPI grew by 8.3%, the highest gain since November 2010. The core PPI increased by 0.3% over the previous month and 6.3% year-on-year.

The second is the debt ceiling. Treasury Secretary Janet Yellen urged Congress to address the issue. She said available data shows that cash and extraordinary measures would be exhausted in October.

In physical trading, gold demand in India remains weak despite a price correction. Gold futures plunged to their lowest level in four months. But Indian buyers were deterred by the fluctuation and the lack of a clear trend in gold prices. Dealers hope that the Gem & Jewelry Export Promotion Council exhibition next week will improve sales.

In China, there was some good buying and premiums rose slightly. But the overall market was still muted. There was also a slight improvement in Singapore as the economy opened up. In Japan, buyers were mostly undecided as they wait for a clearer direction in gold prices.

On the technical front, DailyFX senior strategist Christopher Vecchio said gold prices have a bearish trading bias based on the IG Client Sentiment Index. The number of retail traders that are net-long is higher than yesterday and last week. And based on a contrarian view to crowd sentiment, the higher number of net-long traders suggests that gold prices may continue to fall.

In a related development, the U.S. Commodity Futures Trading Commission reported that market speculators reduced net long positions in COMEX gold to 83,549 contracts in the week that ended on September 7.