Inflation is soaring, gold bulls point to 1900, the Fed has been forced to the corner?

On Thursday (November 11) Asian markets in early trading, gold prices held steady at around US$1850. Driven by the US consumer inflation data exceeding 6%, the key resistance level for gold in the past four months is 1834, and the next target is expected to look at US$1,900. After the U.S. released the inflation report, gold, U.S. bond yields and the U.S. dollar rebounded. Shows that expectations for the Fed to raise interest rates are heating up.

The U.S. CPI hits a 30-year high, and the U.S. dollar, U.S. Treasury yields and gold prices all rise

On Wednesday, with the release of high inflation data in the United States, the price of gold soared, hitting a daily high of US$1,685.55, and then fell back to near US$1,850. It is worth noting that the US Treasury bond yields and the US dollar closed up in the footsteps of gold. The 10-year benchmark Treasury bond rose 12 basis points to close at 1.57%, regaining the ground lost this week. At the same time, the US dollar index rose 0.98% to close at 94.87.

In the New York market on Wednesday, the US Bureau of Labor Statistics (BLS) announced the Consumer Price Index (CPI) for October, which rose 6.2% year-on-year, far higher than the 5.4% in September. In addition, the core CPI, which excludes fluctuating items such as energy and food, increased by 4.6% over the same period, higher than market expectations.

Since 1990, inflationary pressures in the United States have continued to rise, but have never reached 6% or more. The CPI climbed to 6.2% in October. More worrying than the actual figure is that the inflation rate last month rose by nearly one percentage point . The government report showed that the inflation rate rose by 0.9%, bringing the annual inflation rate to 6.2%. The main reason for the accelerated growth of inflation is the rise in energy and food prices.

The Fed is under pressure, and the market expects to raise interest rates in June next year

The dollar has risen, the yield of US Treasury bonds has soared, and the price of gold has soared because the market expects that under the condition of long-term inflation, the U.S. central bank will need to speed up the bond reduction process. In addition, the US two-year Treasury bond yield is currently 0.519%, which means that market participants expect the Fed to raise interest rates in June 2022.

The Fed prefers to use the Personal Consumption Expenditure (PCE) inflation index, which excludes energy and food prices from the calculation. This means that the PCE inflation index cannot accurately define the current level of inflation because the Fed uses this index as the basis for its monetary policy decisions.

However, even from the PCE index, it is difficult for the Fed to ignore these numbers. The previous PCE inflation index showed an annual inflation rate of 4.4%, which is still more than twice the inflation target of 2%. However, government data shows that even personal consumption expenditure (PCE) has risen by 0.6%, raising the core inflation rate from 4% to 4.6%.

Simply put, the Fed has pushed itself to the corner because they continue to believe that current inflationary pressures are temporary and will slowly dissipate. Most economists agree with the Fed’s view that part of the reason for the increase in inflation is supply chain shortages and labor shortages. But most of the recent inflationary pressures will continue to exist in the next two to three years. Energy costs continue to rise, and many analysts expect crude oil prices to reach $100 per barrel again. Food prices continue to be a problem because Americans see their dollars have a much reduced purchasing power for the goods and services they depend on.

Strong breakthrough in the price of gold, the market outlook target is 1900

After the CPI inflation index was released in October, the price of gold rose sharply. It traded to a high close to $1870 before falling back. It is worth noting that the price of gold has soared to the highest price since June this year after rising for four consecutive days, showing a strong breakthrough.

Research believes that by the first quarter of 2022, the price of gold will challenge $1,900. At present, this price may be realized sooner.

On Wednesday, gold broke through the key resistance level of 1834 in the past 4 months, hitting a daily high of US$1,86.61, but then retreated and is currently above US$1,850. The relative strength index (RSI) is at 67, below the overbought level, confirming the upward trend. However, for the gold bulls to accelerate their attack on $1,900, they need a daily closing price higher than the June 3 low of $1,864.98. In this case, the upper resistance area will be the psychological resistance near the 1900 mark.

No important economic agenda was announced on Thursday. However, the November Consumer Confidence Index of the University of Michigan released on Friday may provide a new catalyst for gold investors to take action. In addition, US JOLTS job vacancies will also be announced on Friday.


(Spot gold daily chart)

At 08:41 on November 11, GMT+8, spot gold was quoted at US$1850.08 per ounce.