Gold prices edge higher despite US inflation rise

Gold prices edged higher on Wednesday, rising above the $1,675 per ounce level. If gold prices decline, support may be found near $1,614 per ounce and further down at the 2020 low near $1,441 per ounce. Resistance may be around 1,735 per ounce and higher at $1,765 per ounce.

Gold prices remained steady on Wednesday, gaining a little strength, despite a rising dollar and US yields. The dollar remained strong on Wednesday, exhibiting low volatility even after the release of the US PPI data and the dollar index remained above 113 throughout the day. Increased price pressures on Wednesday supported the dollar, as rising inflation in the US increases the odds of another steep Fed rate hike. US Treasury yields also remained strong, with the US 10-year bond yielding above 3.9%.  

US Monthly PPI and Core PPI data for September released on Wednesday showed that price pressures continue to increase, putting extra strain on the Federal Reserve to continue with its policy of monetary tightening. Thursday’s CPI data will complete the picture of US monthly inflation and are anxiously awaited by traders as they are likely to influence the severity of the Fed’s next rate hikes.

Global recession concerns are causing high market volatility ahead of the US inflation data later in the week. Sharp rate hikes and continuous fiscal tightening run the risk of tipping some of the world’s leading economies into recession. World Bank President David Malpass and International Monetary Fund Managing Director Kristalina Georgieva warned earlier this week of a growing risk of global recession while stressing the need to bring inflation under control.

Continued hawkish Fed rhetoric has rekindled expectations of sharp rate hikes, boosting dollar prices at the expense of competing assets, such as gold. Gold prices are under pressure by the shift of most major Central Banks towards a tighter monetary policy to combat rising inflation rates. Assets yielding interest become a more appealing investment compared to gold as interest rates rise. In its latest monetary policy meeting, the US Fed raised its interest rate by 75 basis points. Rampant US inflation has raised expectations for another steep rate hike at the Fed’s next policy meeting in November, putting pressure on gold prices.

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Written by:
Myrsini Giannouli

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