Price of Gold Fundamental Daily Forecast – Strong CPI Data, Good for USD, Bad for Gold

Gold retreated to its lowest level in 1 ½ weeks on Wednesday in response to a jump in the U.S. Dollar Index. Weaker stock prices probably prevented further losses.

December Comex Gold futures settled at $1328.00, down $4.70 or -0.35%.

Low volatility in higher risk assets and a more cautious approach by investors has led to profit-taking weakness in gold this week.

Demand for gold as a safe-haven asset has dropped this week due to reduced concerns over North Korea.

The U.S. Dollar posted a solid gain against a basket of currencies on Wednesday after a report showed U.S. producer prices rebounded in August and as traders shifted their focus to consumer inflation data due on Thursday. Both producer and consumer inflation data will be important to the Federal Open Market Committee when it meets next week to discuss monetary policy.

The index rallied after the U.S. Labor Department said its producer price index for final demand increased 0.2 percent in August after slipping 0.1 percent in July. The rebound was driven by a surge in the cost of gasoline.

While the rebound suggests that the U.S. economy is holding on to underlying momentum, traders should note that the overall demand picture may not lead to an increase in consumer prices. All the producer price data showed was that the U.S. economy was retaining underlying momentum. Domestic producer prices actually came in less than forecast.

Forecast

Gold is trading lower early Thursday as investors awaited consumer inflation data, due to be reported at 1230 GMT.

The U.S. core consumer price index is expected to have risen 1.6 percent on an annual basis in August which would be the lowest since early 2015, versus 1.7 percent in July.

The Fed is dovish and not likely to raise rates next week. Stronger-than-expected consumer inflation data will still not be enough to change the market’s perception either that the central bank will only raise rates once between now and the end of 2018.

If the CPI data is stronger-than-expected, the U.S. Dollar will benefit the most and gold is likely to weaken. Gold could attract buyers if stocks weaken, but not enough to change momentum to up. This move will only slowdown the selling pressure. However, this won’t mean the Fed is going to raise rates sooner-than-expected.