Week Ahead: Will Gold Hit New 2-year Low?

NEW YORK (Nov 4) If markets had learnt anything this week, it’s that the Fed has got more rate hikes in store as the US central bank battles against inflation that’s at a 40-year high.

Inflation Forecast for Next Week

Here are the forecasts by economists for Thursday’s (November 10th) crucial inflation data release:

• Headline CPI is set to moderate from September’s 8.2% year-on-year growth down to 8% for October. That’s still four times higher than the Fed’s 2% target.
• Core CPI (excluding food and energy prices) is expected to remain stubbornly elevated at a 40-year high of 6.6%.

Tightening Cycle vs Gold

Until the inflation data points to a sustained slowdown, the Fed would be unrelenting in sending US interest rates upwards.

And as we know, this ongoing policy-tightening has already been this year’s enemy #1 for risk assets.

In addition to the hard data, the scheduled speeches by Fed officials in the days ahead may offer further nuance to the US rates outlook, even as Fed Chair Powell’s hawkish signals are still ringing in our ears.

If the other Fed officials suggest that at least some of them are considering when to hit pause on the rate hikes, that may spell some measure of relief for the likes of gold.

Gold Price Forecast

The precious metal remains firmly in its longer-term downtrend, having been guided lower by various simple moving averages (SMA).

Another major dose of unrelenting US inflation, especially in the case of higher-than-expected CPI figures in the week ahead, may result in this key support region giving way below spot gold.

On the other hand, spot gold could resurface above its 21-day SMA if the inflation data eases meaningfully, or if next week’s Fed speak do not echo Chair Powell’s hawkish rhetoric.

Of course, the projected price action above assumes that such levels haven’t been reached before the weekend, depending on how bullion reacts to the pivotal US jobs data due to be released later today (Friday, Nov. 4th).

FXEmpire