Gold Trades Sideways Following Soft Inflation Figures

Gold prices attempted to rally on Thursday but were unable to breach through resistance near the 50-day moving average at 1,212.  A softer than expected Consumer Price index in the US weighed on treasury yields and put downward pressure on the dollar which initially buoyed gold prices.

Technical Analysis

Gold prices where capped on Thursday attempting to rally but failing at resistance. Support on the yellow metal is seen near the 20-day moving average at 1,198. Momentum has turned positive as the fast stochastic recently generated a crossover buy signal.  The index is accelerating upward which points to accelerating positive momentum. The MACD (moving average convergence divergence) histogram is printing in the black with an upward sloping trajectory which points to higher gold prices.

Inflation is weaker than expected

On the heels of Wednesday’s softer than expected Producer Price Index, the Labor Department followed that report with a softer than expected CPI index report.  According to the BLS, U.S. consumer prices rose less than expected in August driven by decline in gasoline and apparel.

CPI was Weaker than Expected in August

The Consumer Price Index increased 0.2% in August after a similar gain in July. On a year over year basis the August, the CPI increased 2.7%, slowing from July’s 2.9% rise. The core CPI which excludes a volatile food and energy component, increased by 0.1%. Core CPI had increased by 0.2% for three straight months. The year over year August, core CPI increased 2.2% after rising 2.4% in July. Expectations were that CPI would increase by 0.3% on the headline and 0.2% on the core in August. The softer numbers show that the increase in wages that has been evident in the August employment number and the July JOLTS report have not spilled over into higher producer or consumer prices.  This could allow the Fed to remain on hold in December.