Gold Price Prediction – Prices Rally as Yields Drop

 

Gold prices rebounded on Wednesday as riskier assets continued to move lower and the dollar declined.  A stronger than expected CPI provided the back drop for lower yields which paved the way for lower gold prices.

Technical Analysis

Gold prices moved higher but rebounded from trend line support, recapturing the 50-day moving average near 1,210.  Target resistance is seen near the 20-day moving average at 1,223. The fast stochastic generated a crossover buy signal, in oversold territory which reflects accelerating positive momentum. The current reading on the fast stochastic is 15, which is below the oversold trigger level and could foreshadow a correction. Negative momentum as reflected by the MACD (moving average convergence divergence) histogram is printing in the red with a flattening trajectory which points to consolidation.

CPI Came in Stronger than Expected

Consumer prices rose more than expected on Wednesday according to the Labor Department.  The CPI increased 0.3% month over month in October after rising 0.1% in September. CPI rose 2.5% year over year rising from September’s 2.3% rise.

Core CPI which excludes food and energy rose 0.2%. This compares to a core reading of 0.1% month over month in September. On a year over year basis the core CPI increased 2.1% after advancing 2.2 % in September. Economists had forecast the CPI climbing 0.3% and the core CPI gaining 0.2% in October.

The decline in the 10-year yield comes as the global growth story continues to perpetuate. On Wednesday Japan reported a decline Q3 GDP by 1.2% year over year compared to the decline of 1% expected.  Despite solid growth in the United States, which is clear is that growth outside the US is declining. This is creating a softer yield backdrop which in turn could weigh on the dollar and allow gold prices to regain some of the recent ground it has lost.