Gold trading reminder: CPI is weakening and shrinking concerns are slightly retreated, can the price of gold go up even if it exceeds one thousand eight?

On Wednesday (September 15) Asian session, spot gold price held steady at around 1803. On Tuesday (September 14), the price of gold rose slightly, supported by weak CPI data. In addition, the decline in the stock market and U.S. bond yields also drove the rise in gold prices.

In the day, the main focus is on China's series of economic data, as well as the British CPI and American industrial output.

Fundamentals are bullish

[U.S. inflation cools down in August]

The increase in US consumer prices in August was lower than expected, ending the momentum of continuous sharp increases, indicating that some upward pressure on inflation has begun to weaken.

According to data released by the US Department of Labor on Tuesday , the consumer price index increased by 0.3% month-on-month in August, the smallest increase in seven months. Compared with the same period last year, the CPI rose by 5.3% in August.

Excluding the volatile food and energy components, the so-called core inflation rose 0.1% month-on-month, the smallest increase since February, reflecting the decline in the prices of used cars, airplane fares and auto insurance. Core CPI rose 4% year-on-year.

According to the median forecast obtained by the Bloomberg survey, economists previously expected the overall CPI to increase by 0.4% month-on-month and 5.3% year-on-year in August.

Faced with rising cost pressures caused by material shortages, transportation bottlenecks, and recruitment difficulties, companies have been increasing the prices of consumer goods and services. Although the price gains associated with the reopening of the economy are beginning to weaken, supply chain tensions may continue until 2022 and keep the inflation rate high.

According to a survey released by the Federal Reserve Bank of New York on Monday, consumers expect the inflation rate to reach 4% in the next three years, which is the highest level since the data dates back to mid-2013. The CPI report also shows that the hot housing market has begun to penetrate into rental prices, and rental prices have set the largest increase since March 2020.

After the CPI data, Fed officials will discuss how and when to start reducing asset purchases at the Federal Open Market Committee meeting next week. Fed Chairman Jerome Powell said last month that the Fed may begin to reduce the size of monthly bond purchases this year, but did not give a specific timetable.

Jennifer Lee, a senior economist at BMO Capital Market, said that the discussion on whether inflation is temporary is far from over. This milder increase will give the Fed some breathing room next week, but it will not last forever.

[The three major stock indexes all closed lower, concerns about recovery and US corporate tax hikes triggered widespread selling]

The U.S. stock market fell on Tuesday. Although there are signs that inflation has eased, economic uncertainty and corporate tax rate increases are more likely to dampen investor sentiment and trigger widespread selling.

The Dow fell 0.84%, the S&P 500 fell 0.57%, and the Nasdaq fell 0.45%.

(Dow daily chart)

As the optimism of the deal faded, it reversed the rally triggered by the US Department of Labor's Consumer Price Index (CPI) report. The three major stock indexes closed lower, reminding people that September is usually a tough month for the stock market.

Sam Stovall, chief investment strategist at CFRA Research, said: “The market may just be preparing for a belated correction. From a seasonal perspective, September is often the time for fund managers to whitewash their books.”

Kingsview Asset Management portfolio manager Paul Nolte said: "We are still in a correction mode that people have been expecting for several months. Economic data has been lower than expected, and the Delta variant is raging."

[10-year bond yield hits three-week low]

U.S. Treasury yields fell on Tuesday. Previous data showed that core consumer prices in the United States rose the smallest in six months in August, indicating that inflation may have peaked and eliminating the urgency of the Fed’s next move.

The yield on the benchmark 10-year Treasury note fell by more than 6 basis points to a low of 1.263%, the lowest since August 24.

(Daily chart of 10-year Treasury bond yield)

The data in the next few months may fluctuate, as the shortage of basic materials and parts creates bottlenecks in various supply chains and drives up prices.

The slowdown in inflation in August gave the Fed breathing room. The Fed is preparing to reduce the scale of bond purchases and make a decision on when to start raising interest rates from near zero.

Jim Barnes, Director of Fixed Income at Bryn Mawr Trust, said: "The CPI data released earlier showed that inflation was not as expected and yields began to fall. The market seems to be interpreting this trend as a more dovish Fed's future monetary policy. sign."

Fundamentals are bad

[Republicans oppose raising the debt ceiling]

US Senate Democratic leader Chuck Schumer on Tuesday urged the US business community to start a debate with Republicans not to raise the debt ceiling to avoid the danger of a government default or the suspension of some institutions.

Schumer told reporters in the Capitol that the Senate Republicans are doing "a risky and dangerous thing."

Senate Republican leader Mitch McConnell has repeatedly stated that Democrats should raise the debt ceiling by themselves. He said on Tuesday that “ Republicans are unanimously opposed to raising the debt ceiling , not because it is unnecessary,” but because he believes that Democrats should include it in their $3.5 trillion infrastructure bill, and then in the absence of Republican support. Let the bill pass.

However, senior member of the Senate Finance Committee, Richard Shelby, expressed optimism to reporters on Tuesday. He believes that Congress will approve the debt ceiling increase in time, even though many members of his Republican Party oppose it.

In general, the price of gold closed above the 50% retracement level of 1803 on Tuesday, indicating that there is a chance for further rise, but the shadow of the Fed's shrinking lingering. In addition, the breakthrough of 1803 is not considered strong, and the price of gold may still fall below 1800.

(Spot gold daily chart)

GMT+8 8:53, spot gold was quoted at US$1802.71 per ounce.