Gold price comes under pressure as yields revive after US Inflation report

• Gold price holds gains tightly as Fed policymakers support an unchanged monetary policy ahead.
• The US Dollar reported bearish closes six times in a row as hawkish Fed bets wane.
• US CPI data came in broadly in line with market expectations.

Gold price (XAU/USD) faces some selling pressure as the Inflation report for September remained majorly in line with estimates. The monthly core Consumer Price Index (CPI) that excludes volatile oil and food prices expanded by 0.3% and the annual data decelerated to 4.1% as expected by the market participants. The headline inflation remained higher than expectations as a rally in global oil prices spurted prices of gasoline and food products. The headline CPI grew at a higher pace of 0.4% on month, while investors forecasted a pace of 0.3%. The annual headline CPI grew at a steady remained steady pace of 3.7%, marginally higher than expectations of 3.6%.

The US Dollar Index (DXY) rebounds swiftly as investors expect that no progress to ease in inflationary pressures could allow the Federal reserve (Fed) to raise interest rates further in November.

While the majority of Fed policymakers favored an additional interest rate hike ahead as per FOMC minutes, rising long-term Treasury yields have forced them to support keeping interest rates steady. Higher bond yields are expected to slow down the pace of spending and investment. At this point in time, when inflation is consistently falling and Middle East tensions are deepening, risks of under-tightening would be lower than the consequences of tightening too much. 

Daily Digest Market Movers: Gold price slips as yields rebound

• Gold price faces a sell-off above $1,880 as the core inflation for September remained in line with estimates.
• Monthly core inflation expanded by 0.3% as expected and the annual core CPI dropped to 4.1%. The headline CPI rose more than expected as higher oil prices pushed gasoline rates.
• Rising expectations for the Fed keeping interest rates unchanged at 5.25-5.50% are backed by multi-year highs in long-term US Treasury yields, which are sufficient to squeeze spending and investment ahead.
• The 10-year US Treasury yield corrects from recent highs of 4.7% as the deepening Israel-Hamas conflict has also contributed to the decline in expectations of further policy-tightening.
• While investors see the Fed keeping interest rates steady ahead, policymakers have a different approach to the interest rate outlook.
• Atlanta Fed Bank President Raphael Bostic said on Tuesday that current monetary policy is sufficiently restrictive and inflation will come down to 2% without triggering a recession.
• Fed policymakers: San Francisco Fed Bank President Mary Daly and Dallas Fed Bank President Lorie Logan warned that higher long-term US Treasury yields could substitute the need for further interest rate hikes by making borrowing expensive. Fed’s Daly said that risk of under-tightening would be lower than the risk of raising rates too much. 
• Fed Governor Michelle Bowman reiterated on Wednesday that further rate hikes are highly required to restore price stability despite some progress in inflation softening. 
• Fed’s Bowman further added that after raising interest rates they should be kept higher for a longer period due to persistent risks of inflation amid robust consumer spending and upbeat labor market conditions.
• The US Dollar Index (DXY) extends its correction to near 105.50 despite a hot producer inflation report, released on Wednesday.
• The US Bureau of Labor Statistics reported that the September monthly headline Producer Price Index (PPI) rose at a higher pace of 0.5% vs. expectations of 0.4% and that core PPI grew by 0.3% against the estimates of 0.2%. On an annualized basis, the prices of core goods and services at factory gates jumped to 2.7%, above the 2.3% consensus. 
• A surprisingly hot PPI report has improved the inflation outlook. For more clarity, investors will focus on the Consumer Price Index (CPI) data for September, which will be published at 12:30 GMT.
• As per the estimates, the monthly headline and core inflation are expected to register growth of 0.3%. Rising energy prices due to rallying global oil prices amid tight supply may result in sustained growth ahead. The impact of the rise in headline inflation would be limited to the interest rate plot.
• Annual headline and core inflation are seen declining to 3.6% and 4.1%, respectively. A surprisingly hot inflation report could set a hawkish undertone for the Fed’s monetary policy in November.
• The Federal Open Market Committee (FOMC) minutes for September released on Wednesday conveyed that a majority of policymakers at that meeting were in favor of one additional interest rate hike and keeping them restrictive for a longer period.

Technical Analysis: Gold price drops below $1,880 

Gold price jumps to near $1,880.00 on Thursday as hawkish Fed bets swiftly fade away. The precious metal registers a fresh two-week high and is gathering strength for further upside. The yellow metal climbs above the 20-day Exponential Moving Average (EMA) around $1,872.00, which indicates that the short-term trend has turned bullish. The broader Gold price outlook is bearish as the 50 and 200-day EMAs have already delivered a Death Cross.