Gold Price Prediction – Gold Breaks Out on Robust Inflation Acceleration

Gold prices broke out of a 5-month range and is poised to test higher levels.  The move came on the back of a stronger than expected consumer price index report that showed that inflation in the United States continues to accelerate. Inflation hit a 30-year high in the U.S. and was also very strong in China rising more than 13%. This followed a stronger than expected U.S. PPI report reported on Tuesday. The move in the yellow metal came despite a rally in the greenback along with rallied in both the 10-year and 2-year Treasury yields.

Technical analysis

Gold prices broke out of a 5-month range which was former resistance and now support at the September highs at 813. Target resistance is seen near the June highs at 1916. The 10-day moving average has crossed above the 50-day moving average which means a short-term up trend is now in place. Short-term momentum has turned negative as prices are overbought. The fast stochastic generates a crossover sell signal. Prices are overbought as the fast stochastic is printing a reading of 85, well above the overbought trigger level of 80. Medium-term momentum has also turned positive as the MACD (moving average convergence divergence) index generated a crossover buy signal. This scenario occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses above the MACD line). The MACD histogram is printing in positive territory with an upward sloping trajectory which points to higher prices.

CPI Rise More than Expected

More robust than expected U.S. Consumer Price Inflation increased the likelihood of an earlier rate hike. The Labor Department reported that consumer inflation hit its highest point in more than 30 years. The consumer price index rose 6.2% year over year, the most since December 1990. That compared with the 5.9% estimate.  Monthly, the CPI increased 0.9% against the 0.6% estimate.