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XAU/USD tumbles to fresh lows sub-$1,900/oz

XAU/USD tumbles to fresh lows sub-$1,900/oz

  • Gold prices rapidly lose momentum and breach $1,900/oz.
  • The greenback gathers further traction and hurt the metal.
  • US CPI figures fell in line with previous estimates in September.

Prices of the ounce troy of the precious metal lost further ground on Tuesday and challenge 3-day lows in the sub-$1,900 area on the back of the strong pick up in the demand for the greenback.

In fact, a bout of risk aversion benefits the greenback following the opening bell in Wall St. after House Speaker N.Pelosi said the recent proposal from President Trump on extra fiscal stimulus fell significantly short of expectations. Pelosi, however, expects both parties could clinch a deal eventually.

While the US Dollar Index (DXY) navigates in the area of 2-day highs around 93.50, the yellow metal tests 3-day lows near the $1,890 per ounce.

Earlier in the session, September’s US inflation figures measured by the CPI showed headline consumer prices rose 0.2% inter-month and 1.4% over the last twelve months. Furthermore, prices excluding food and energy costs rose 0.2% MoM and 1.7% from a year earlier. Extra data saw the NFIB Index at 104.0 in September and the IBD/TIPP Index is due later.

Gold key levels

As of writing Gold is losing 1.65% at $1,890.72 and faces the next support at $1,873.05 (monthly low Oct.7) seconded by $1,873.01 (50% Fibo of the June-August rally) and then $1,848.66 (monthly low Sep.24). On the other hand, a breakout of $1,933.28 (monthly high Oct.12) would expose $1992,63 (monthly high Sep1) and finally $2,015.65 (high Aug.18).

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XAU/USD moves in tandem with US inflation expectations

XAU/USD moves in tandem with US inflation expectations

  • Gold looks to be tracking the US inflation expectations. 
  • The yellow metal has cleared the bearish trendline from August highs. 

Gold is moving in lockstep with the US inflation expectations, which have risen back to highs seen in August. 

The yellow metal is currently trading largely unchanged on the day near $1,927 per ounce, having peaked at a record of $2,075 in August and pulled back to $1,848 on Sept. 24. 

According to data source Federal Reserve Bank of St. Louis, the US 5y5y forward inflation expectation rate was 1.9% on Friday – just short of the August high of 1.91%, having seen a low of 1.71% on Sept. 24.

Indeed, inflation expectations are closing on the Federal Reserve’s (Fed) 2% price target. However, the central bank is now targeting an average inflation of 2%. In other words, the bank intends to allow inflation to rise above the 2% target for some time before raising interest rates. 

As such, the path of least resistance for gold, a proven inflation hedge, is to the higher side. 

The yellow metal has cleared the resistance of the trendline connecting Aug. 7 and Sept. 16 highs. 

The breakout indicates the pullback from the record high of $2,075 has ended, and the broader uptrend has resumed. 

Supporting the bullish case is the resurgence of the coronavirus cases, especially across Europe. However, if virus concerns lead to risk aversion, the US dollar will likely find bids, complicating matters for gold bulls. 

Technical levels

 

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