Gold Prices Build After Holding Support, CPI Data In Focus

A slightly softer dollar tone and dip in US yields has supported gold over the past 24 hours. The prospects for a sustained rally from current levels will be dependent on reaction to the US CPI data.

The US data releases were slightly weaker than expected with a 0.1% gain in industrial production compared with an expected 0.2% and the New York Empire index was also weaker than expected, although there were strong readings for the six-month outlook.

There were no comments from Fed Vice-Chair Fischer surrounding the immediate outlook for monetary policy and he did state that the US was close to meeting its inflation and employment objectives. Fischer emphasised that the Fed was facing difficulties in raising rates due to structural issues and this had some impact in curbing dollar support, although overall moves were limited.

The dollar’s trade-weighted index retreated from 7-month highs and there was also a decline in US bond yields as they drifted further away from the 1.80% level.

Gold found further solid support on approach to the $1,250 area with the combination of a softer dollar and lower yields important in easing underlying selling pressure on gold.

Overall risk appetite was stronger during the Asian session on Tuesday and there were significant gains for commodity currencies as industrial commodity prices strengthened. Gains across commodity prices were significant in providing net support for gold despite solid risk appetite.

Gains in commodity currencies were also important in curbing wider dollar support during the Asian session with EUR/USD holding above the 1.1000 level, while Sterling also gained wider support.

The latest Chinese data on new loans was stronger than expected which helped underpin expectations surrounding the short-term outlook for growth and risk conditions remained firmer.

After pulling away from the $1,250 support area, there was also evidence of some covering of short positions, while US bond yields dipped lower during the European session.

Overall, gold strengthened to above the $1,260 level ahead of the US open with dollar moves the main driver of price action.

The latest US CPI release will be watched very closely for evidence on underlying trends with expectations that higher energy prices triggered a 0.3% gain for the month with a core 0.2% gain. Stronger than expected data, especially for the core rate, would tend to put upward pressure on the dollar and bond yields, which would undermine gold, while a subdued CPI reading would tend to support gold prices.

Gold Prices 4H Chart


Tim is a contributing author to He is an economist and has been involved in financial markets for over 20 years as an analyst. He specialises in global economic trends, macro policy and central banks. Extensive knowledge, experience and data mining is used to anticipate trends in equities, bonds and forex with a contrarian slant. He is a graduate of the University of York with a degree in Economics/Econometrics.