Gold price soars on soft US Inflation report

Estimated read time 5 min read


  • Gold price moves sharply higher as US inflation data softens more than expectations in October..
  • A nominal decline in inflation may keep hopes of an changed interest rate policy unabated.
  • Various Fed policymakers are scheduled to speak today.

Gold price (XAU/USD) rose sharply as the US Consumer Price Index (CPI) data for October has turned out gradually softer than expectations. Monthly headline CPI remained stagnant against expectations of a 0.1% rise and a 0.4% growth in September. In the same timeframe, the core inflation rose by 0.2%, slower than expectations and the former reading of 0.3%. On an annual basis, the headline inflation softened to 3.2% versus. the consensus of 3.3% and a 3.7% reading in September. The core CPI slowed nominally to 4.0% against the estimates and the prior reading of 4.0%.

The precious metal jumps while the US Dollar plunges as Federal Reserve (Fed) may deliver a neutral monetary policy outlook. However, the Fed is committed to bringing down inflation to 2% in a timely manner and it won’t hesitate to raise rates further if it thinks inflation has become entrenched. Before the release of the US CPI data, Fed Vice Chair Philip N. Jefferson said that some measures of economic uncertainty, particularly for inflation, are elevated.

Daily Digest Market Movers: Gold price rises as US Dollar softens after US CPI data

  • Gold price jumps sharply to near $1,960.00 as inflation slows in October at a faster pace than expected.
  • The precious metal capitalizes on nominl decline in inflation data as Federal Reserve policymakers may not strongly advocate for raising interest rates further.
  • US headline inflation softened significantly in October due to a sharp fall in global oil prices, which resulted in lower revenues at gasoline stations.
  • A decline in US inflation may dampen the expectations of one more interest rate increase from the Fed at its December monetary policy meeting or in the early start of 2024 further.
  • As per the CME Group Fedwatch tool, traders see a 15% chance of the Fed raising interest rates by 25 basis points (bps) at the December meeting and a 25% chance at the monetary policy meeting in January 2024.
  • The odds for further rate-tightening edged higher as Fed Chair Jerome Powell along with his colleagues remain unsure about whether current interest rates are adequate to bring down inflation to 2% last week.
  • Jerome Powell warned that a failure to control inflation by the Fed would be a big mistake. Therefore, the central bank won’t hesitate to tighten monetary policy further.
  • Investors will focus on speeches from Fed policymakers: Michael Barr, and Austan Goolsbee ahead.
  • The US Dollar Index (DXY) plunges to near 104.80 amid hopes that the Fed is done with hiking interest rates, prompted by soft inflation report. 10-year US Treasury yields plummeted to near 4.48%.
  • This week, investors will also focus on the monthly US Retail Sales data for October. As per the consensus, consumer spending is forecast to have contracted by 0.3% against 0.7% growth in September.
  • Meanwhile, with no significant escalation in Middle East tensions appeal for bullion has diminished. 

Technical Analysis: Gold price jumps above $1,950

Gold price recovers vertically after of the release of the soft US inflation data. The yellow metal has recovered to near 20-day Exponential Moving Average (EMA), which trades around $1,960 while the 50-EMA near $1,938.00 continues to offer support.

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.


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