Gold: ‘Not Too Hot, Not Too Cold’ Until Fed Gives Guidance

September 15, 2021

New York (Sept 15) Gold futures are inching lower on Wednesday as investors continue to monitor the price action in the choppy U.S. Treasury and rangebound U.S. Dollar Index markets. The consolidation around the $1795.00 to $1800.00 levels is likely to continue over the short-run with perhaps a slight bias to the upside as softer U.S. inflation data fed uncertainty about the Federal Reserve’s tapering timeline.

At 09:58 GMT, December Comex gold futures are trading $1803.20, down $3.90 or -0.22%.

Gold futures jumped to the bullish side of a pair of 50% levels at $1795.00 to $1800.00 amid Tuesday’s lower-than-expected CPI data, however, even a decent drop in Treasury yields couldn’t attract enough buyers to fuel a genuine breakout to the upside. Some of that was attributed to a late session rally in the U.S. Dollar. This suggests that investors are likely to express caution until they see a more definitive drop in yields and the greenback and we may not see that until after next week’s Fed meeting.

Meanwhile, we can’t call the gold market bearish at this time either because the slowing of consumer inflation also reduces the chances and the pace of any plans by the Federal Reserve to begin aggressively reducing its massive asset buying stimulus. We’ll probably see the start of tapering before the end of the year, but it’s not likely to be robust until the labor market strengthens substantially.

Treasury Yields are Mixed Following Lower-than-Expected Inflation

U.S. Treasury yields were mixed on Wednesday morning, following data which showed lower-than-expected inflation. The yield on the benchmark 10-year Treasury note rose less than a basis point to 1.28%. The yield on the 30-year Treasury bond fell by nearly 1 basis point to 1.845%.

The mixed performance in 10 and 30 year yields is being mirrored by gold traders, leading to today’s sideways trade.

US Dollar Drifts after Soft Inflation Data

The U.S. Dollar is holding in a range against a basket of major currencies on Wednesday after softer-than-expected U.S. inflation figures tempered immediate expectations about Federal Reserve tapering.

The softer print eases concerns over an imminent acceleration in consumer inflation and should nullify any lingering pressure on the Fed to announce its tapering plans at its September 21-22 monetary policy meeting. The news is also dampening short-term demand for the U.S. Dollar which is helping to support dollar-denominated gold.

Tapering tends to benefit the dollar as it suggests the Fed is one step closer toward tighter monetary policy. It also means the central bank will be buying fewer debt assets, effectively reducing the number of dollars in circulation, Reuters said.

Consumer Prices Post Smaller-than-Expected Increase in August

Prices for an array of consumer goods rose less than expected in August in a sign that inflation may be starting to cool, the Labor Department reported Tuesday.

The consumer price index increased 5.3% from a year earlier and 0.3% from July. Economists surveyed by Dow Jones had been expecting a 5.4% annual rise and 0.4% on the month.

Core CPI rose just 0.1% for the month versus the 0.3% estimate, and 4% on the year against the expectations of 4.2%.

Daily Outlook

The “not so hot, not so cold” trade should continue in gold with prices hovering around $1795.00 to $1800.00 until traders get some clarity from the Federal Reserve on September 22 when it releases the results of its two-day meeting.

In economic news, trader’s will get the chance to react to August’s import and export prices at 12:30 GMT. Industrial production data for August is due to come out at 13:15 GMT.


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