Gold price (XAU/USD) edges lower below $4,150 during the early European trading hours on Friday, pressured by the rebound in the US Dollar (USD). Traders remain cautious after a sharp sell-off over the previous sessions. Analysts believe that the end of the Diwali festival in India, the world’s second-largest gold consumer, might reduce physical demand and undermine the precious metal price.
Nonetheless, the prolonged US government shutdown and global trade tensions could boost the safe-haven flows, supporting the yellow metal. The expectation of US interest rate cuts might contribute to Gold’s upside. Lower interest rates could reduce the opportunity cost of holding Gold, supporting the non-yielding precious metal.
All eyes will be on the delayed release of the US Consumer Price Index (CPI) inflation data for September, which will be published later on Friday. Economists estimated the headline US CPI to increase by 0.4% MoM in September, putting the 12-month inflation rate at 3.1%. Excluding food and energy, core CPI is expected to show a 0.3% monthly increase and a rise of 3.1% on an annual basis.
Daily Digest Market Movers: Gold retreats ahead of key US inflation data, US-China trade talks
- High-level trade negotiations between the US and China are set to begin in Malaysia later on Friday. China’s Vice-Premier He Lifeng will participate in the meetings, as well as US Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer.
- US President Donald Trump and Chinese President Xi Jinping will meet next Thursday on the sidelines of the Asia-Pacific Economic Cooperation summit.
- The Trump administration is considering a plan to restrict a broad range of software-driven exports to China to retaliate against Beijing’s latest round of rare earth export restrictions, Reuters reported late Wednesday.
- The US government shutdown on Friday has entered its 24th day, becoming the second-longest federal funding lapse ever, with no end in sight. The GOP-backed stopgap bill failed to pass in the Senate for a 12th time on Wednesday. The 54-46 vote fell mostly along party lines.
- US President Donald Trump on Wednesday imposed Ukraine-related sanctions on Russia for the first time in his second term, targeting oil companies Lukoil and Rosneft.
- The Federal Reserve (Fed) is likely to lower its key interest rate by 25 basis points (bps) next week and again in the December policy meeting, according to a Reuters poll.
- The CME FedWatch tool showed a 97% chance of a 25 basis points (bps) rate cut.
Gold clings to a bullish stance in the longer term above the key EMA
Gold price trades on a negative note on the day. According to the daily chart, the positive outlook of the precious metal remains intact as the price holds above the key 100-day Exponential Moving Average. The upward momentum is supported by the 14-day Relative Strength Index (RSI), which stands above the midline near 60.0.
On the bright side, the first upside barrier to watch is $4,218, the high of October 15. Sustained upside momentum could take XAU/USD back up to the $4,330, the high of October 16. Further north, the next resistance level is located at the upper boundary of the Bollinger Band of $4,365.
On the other hand, the initial support level for yellow metal is seen at $4,066, the low of October 23. More bearish candlesticks reflect a continuation of downside pressure, possibly dragging the price down to the next bearish target at the $4,000 psychological level, followed by the October 10 low of $3,947.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it.
Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.