Gold Price Extends Decline As Market Ignores Soft US Inflation Data

Summary:
• Gold price went up after US consumer inflation affirmed a likely interest rate cut before the year ends. But there's more at play.

Gold price stayed on the downtrend Wednesday, going down by 0.3 percent in the New York session to trade at 2,590 at the time of writing. The precious metal was momentarily boosted by soft US inflation data released on Wednesday that raised prospects of another Fed interest rate cut before the year ends.

However, it soon declined as traders digested the data and weighed it against the implications of the incoming Trump presidency. Gold has had a rough run in recent weeks, and is down by 1.6 percent in the last month.

The US dollar strengthened in the runup to last week’s US presidential elections as opinion polls pointed to a potential Donald Trump presidency. That potential has since become a reality, and Trump’s win is expected to usher inflationary economic policies that could see the Federal Reserve keep interest rates elevated.

However, the October Consumer Price Index (CPI) matched forecast estimates, lending support to the US dollar. Core CPI (excluding food and energy prices) stood at 0.3 percent month-on-month, while the headline CPI was at 0.2 percent during the same period. The annualised inflation rate read 2.6 percent, which is still above the Fed’s target rate of 2 percent.

Meanwhile, benchmark 10-year US treasury bond yields fell by 9 basis points in the aftermath of the data release. That adds propulsion to gold price and will support the metal ahead of Thursday’s release of US Producer Price Index (PPI) and Friday’s Retail Sales data.

Gold price prediction

Gold price pivots at 2,600, and the buyers will stay in control if the price remains above that level. The uptrend will likely meet initial resistance at 2,609, but a stronger upward momentum could break above that level and test 2,620.

On the other hand, the sellers will be in control if the price breaks below 2,600. In that case, the first support is likely to come at 2,588. However, if they extend that control, the price could break below that level and invalidate the upside narrative. Also, the decline could send the price to test the second support at 2,580.