Hot Inflation and Strong Growth Keep Gold Under Pressure
Gold slipped on Friday and headed for a second straight monthly decline after US data showed inflation accelerating alongside faster growth. Both strengthen the case for a December Fed hike, and higher rates hurt gold because it pays no interest.
Gold: Data Reinforce the Hawks
Gold fell more than 1% on Thursday after the Commerce Department reported the PCE price index, the Fed’s preferred inflation gauge, rose 0.5% in September, Reuters reported. Headline PCE inflation climbed to 3.6% from 3.4% over the year, while core, which strips out food and energy, rose to 3.1% from 3.0%, both in line with forecasts. High Ridge Futures’ David Meger said inflation running hotter than the Fed’s target is building expectations for a December hike, and the report did nothing to ease that fear. CME’s FedWatch tool, which turns futures prices into rate odds, puts the chance of at least one hike by December at about 83%.
Growth added to the pressure. Third-quarter GDP expanded at a 3.4% annualized pace, above the 3.2% expected and up from 2.2% in the second quarter, the Bureau of Economic Analysis said, with consumer spending growing about 3.8%. The one softer signal sits inside the same report: quarterly PCE inflation eased to a 2.1% pace from 5.0% in the second quarter, while core slowed to 2.5% from 3.3%. The market chose to focus on September’s monthly jump rather than the quarterly cooling, which tells you how one-sided the rate debate has become.
Oil and Dip Buyers
Gold has lost more than 3% in October as Middle East fighting kept energy prices and inflation fears elevated. Oil rose on signs Washington could resume strikes on Iran after next week’s midterm elections. Chinese households and other long-term investors have been buying near recent lows, which has kept gold close to $4,000 after last week’s tech-led selloff.
Silver: Same Monthly Drag
Silver and platinum are also on track for a second straight monthly loss. Higher-for-longer US rates and slower growth expectations weigh on silver’s industrial demand, which makes up more than half of its market.
Gold Price Forecast
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See all Gold forecastsGold Technical Analysis: XAU/USD Slips Below $4,000 as $3,975 Comes Into Focus
Gold is trading near $3,994 on the 4-hour chart, down about 0.7% today. Prices were turned back at $4,079 by a falling trendline, a line connecting lower highs since mid-October. Gold has now dropped below $4,015 and the $4,000 mark.
Support, where buyers tend to step in, is $3,975, last week’s low, then $3,943. Resistance, where sellers tend to step in, is $4,015, then $4,039.
RSI, which measures the strength of recent buying and selling, is near 37 and below its signal line, a slower average of RSI, so sellers have the edge. I stay bearish while gold is below $4,039. A close below $3,975 would open $3,943, while a move above $4,039 would ease the pressure.
Silver Technical Analysis: XAG/USD Breaks Below $52.69 as $50.71 Comes Into Focus
Silver is trading near $51.37 on the 4-hour chart, down about 1.5% today. Prices broke below the $52.69 floor that held all week and are still falling inside a channel, two parallel lines that have guided them lower since September.
The first support is $50.71, then $49.51. On the upside, the broken $52.69 floor is now the first resistance, followed by $54.68.
RSI is near 25, which is oversold, meaning prices fell very fast, so a short bounce is possible. In my view, silver stays bearish below $52.69. A close below $50.71 would open $49.51.