- Gold prices are inching higher as the market awaits the US CPI release.
- Market reaction to the CPI data will depend on whether rate cut expectations are already priced in.
- From a technical analysis perspective, the gold chart may be forming a double top pattern ahead of the CPI release.
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Gold prices inched higher in Asian trade as market participants brace for the US CPI release. The precious metal continues to flirt with the all-time highs (ATH) around 2531/oz.
Market participants may be eyeing US CPI as a catalyst which could inspire a breakout and push gold prices to fresh highs. I am a bit more skeptical however, and there are two reasons for that. The first being that US inflation data does not hold the same sway as it did a few weeks back. The second is the reaction following last week’s labor data suggests that a lot of the rate cut expectations may be priced in.
If that is the case we could see an initial spike to print a fresh high before a significant pullback. However, as the trading adage goes, ‘trade what you see, not what you think’. We need to keep this in mind and keep an eye on the data release as well as the market’s reaction to it.
The US Dollar has struggled to maintain Monday’s momentum with the DXY failing to advance. This in part could explain gold’s rise overnight. This could be caution ahead of the CPI release with market participants mindful of the US Dollar price action we saw after the jobs data on Friday.
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Geopolitics remain in play and continue to underpin gold prices. A visit by US Secretary Blinken and UKs David Lammy to Ukraine has increased concerns that the US and UK may grant Ukrainians the ability to use weapons from Western Nations to strike at the heart of Russia.
Market participants may view this as an unnecessary risk which may keep gold prices supported. Such an attack would surely prompt a Russian response and the fear is that this could trigger attacks by Russia on European nations or potentially NATO members.
Technical Analysis Gold (XAU/USD)
From a technical analysis standpoint, the four-hour gold chart could be forming a potential double top pattern heading into the US CPI release.
The last time we had a double bottom pattern, gold prices rallied from 2471 on September 4 to a high of around 2529 on September 6. Will a double bottom lead to a similar move but to the downside?
It is a tough one to call as we saw following the US jobs data release. Markets may have already priced in a substantial amount of rate cuts and thus only a significant miss from the CPI may warrant a significant reaction. Even then i remain skeptical that such a move would prove sustainable.
A move lower from current price, may find some support at a key confluence area around 2507 which houses the 100-day MA.
Conversely, a move higher from here needs to navigate its way past the ATH print of 2531 before the 2550 handle comes into play.
GOLD (XAU/USD) Four-Hour (H4) Chart, August 23, 2024
Source: TradingView (click to enlarge)
Support
Resistance
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He has spent the last 3 years in an analyst role honing his skills across various financial domains, including technical analysis, economic data interpretation, price action strategies, and analyzing the geopolitical impacts on global markets. Currently, Zain is advancing in obtaining his Capital Markets & Security Analyst (CMSA) designation through the Corporate Finance Institute (CFI), where he has completed modules in fixed income fundamentals, portfolio management fundamentals, equity market fundamentals, introduction to capital markets, and derivative fundamentals.
He is also a regular guest on radio and television programs in South Africa, providing insight into global markets and the economy. Additionally, he has contributed to the development of a financial markets course approved by BankSeta (Banking Sector Education and Training Authority) at NQF level 6 in South Africa.
