Trade Gold on the US CPI Data Release

Gold has seen a significant move in the past week since it became apparent that Donald Trump was heading for the White House. This move has increased as the extent of the Republican victory has become clear. The main driver behind this movement has been dollar strength, spreading through the market due to expected inflationary conditions from Trump’s proposed policies. Gold, in particular, has felt the impact more than other assets, taking a hit of over 7% in the past week, retracing to levels not seen since mid-September from recent highs.

Gold is now trading at another pivotal level as we approach the next key data update in the US, and a surprise in either direction on tonight’s release could trigger sharp movements in the world’s favorite precious metal. It’s unsurprising to experienced traders that the recent drop has found some support around these levels, as it has hit a major support trendline just as we approach a potential fundamental shift for the dollar. The Fed made it clear at its last meeting that it will continue to make decisions based on short-term data; however, most investors agree that it would be negligent not to look ahead—as the market is—to the impact of the new government next year, which most see as inflationary.

This brings the importance of tonight’s CPI data release into sharper focus. If the data comes in stronger than expected, it could give the FOMC reason to delay the anticipated rate cut in December, currently priced in at a 62% chance. Conversely, a weaker print would likely increase the likelihood of a rate cut and lead to a market correction from recent moves. Expectations are for the main CPI month-on-month number to show a 0.2% increase, with the Core CPI slightly higher at 0.3%, and the year-on-year figure expected to show a 2.6% increase.

Gold bears and recent trend followers will be hoping for stronger results, which would likely push the dollar higher and break the current support level, opening a path to lower levels and the 200-day moving average around $2,400. Meanwhile, Gold bulls will be hoping for a weaker print to trigger a recovery rally. Given the recent trend, the market is still likely to be in a “sell the rally” or “sell the break” mode, but regardless of the outcome, traders expect further movements in Gold following the data release.

Resistance and Support Levels

• Resistance 2: $2,698.98 – Trendline Resistance
• Resistance 1: $2,659.72 – Former Support Trendline
• Support 1: $2,589.59 – Trendline Support and November Low
• Support 2: $2,395.03 – 200-Day Moving Average

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