Gold price extended Friday’s gains on Monday as a reaction to the US dollar’s retreat. The dollar index, which tracks the value of the greenback against a basket of six currencies, hit an intraday low of $107.80; its lowest level since 26th August.
Gold price has been under pressure in recent months amid the environment of high interest rates. The Fed has held an ultra-hawkish stance as it strives to deal with the 40-year high inflation. However, economists expect Tuesday’s US CPI data to offer some relief to the precious metal.
Analysts expect consumer prices to have risen by 8.1% in August YoY compared to the prior month’s 8.5%. An indication that inflation has peaked may have investors price in a lower interest rate hike in coming months. An environment of high interest rates tends to increase the opportunity cost of holding the non-yielding bullion while boosting the US dollar.
Gold price prediction
Gold price edged higher on Monday while remaining within a two-week range. Granted, the precious metal has rebounded from the six-week low of $1,688.96 it hit at the beginning of September. Even so, it has been trading below $1,750 since 26th August. As at the time of writing, it was at $1,729.18.
As shown on its daily chart, it is trading below the 25 and 50-day exponential moving averages despite the recorded gains. In the ensuing sessions, the precious metals’ market is bound to be subject to heightened volatility with the US inflation data in the horizon.
In the immediate term, the range between $1,700 and the 25-day EMA at $1,733.25 is still worth watching. Even with lower-than-expected US CPI figures, gold price gains may be curbed along the 50-day EMA at $1,754.10. This forecast is founded on the expected super-sized rate hike of 75 basis points in the Fed’s September meeting. Indeed, a move past the aforementioned level will invalidate this thesis.
On the flip side, a sign that US consumer prices are yet to peak may have gold price momentarily drop below the psychologically crucial level of $1.700 before bouncing back to its current range. Even so, I expect it to remain above its YTD low of $1,680.27.