Gold Breaks Out Above Trend Line Resistance Following Robust CPI

Gold prices increased, breaking out above trend line resistance. The dollar moved sharply lower, which helped buoy the yellow metal. U.S. Treasury yields were mixed as the 2-year yield continued to move higher and the 10-year edged lower. Consumer prices were roughly in line with expectations. The Fed Beige Book was released in the afternoon. Consumer spending grew at a modest pace. Optimism is high, but growth expectations have cooled. Employment grew modestly in recent weeks.

Technical Analysis

Gold prices rallied for a 4th consecutive trading session. Prices broke out above resistance, which is now supported near a downward sloping trend line that comes in near $1,823. Additional support is seen near the 200-day moving average at 1,800.   Resistance is seen near the January highs at 1,831. Short-term momentum has turned positive as the fast stochastic generated a crossover buy signal. Medium-term momentum has turned positive as the MACD (moving average convergence divergence) index has generated a crossover buy signal. This situation occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses above the MACD signal line (the 9-day moving average of the MACD line).

CPI Hits a 50-year High

On Wednesday, the U.S. Labor Department released its Consumer Price Index. Headline inflation at the consumer level was 7% year over year, which was in line with expectations. These figures were the highest level of inflation since 1982. On a monthly basis, CPI rose 0.5%. Expectations were for CPI to increase  7% on an annual basis and 0.4% from November.