Gold comfortably higher ahead of inflation data

Tuesday’s closing for gold is comfortably higher than Friday’s close, and even more gains may be in store for the precious metal so long as geopolitical risks are high and the dollar continues to see additional selling pressure. Risk-on mood has had an impact on gold prices, but the gap that existed over the weekend still exists.

Today’s decline in gold prices is partly attributable to the increase in bond yields. Even if gold may not be shining as brightly right now, as long as the Middle East scenario stays dire, it might readily regain its vigour. This explains why oil prices have continued to rise, and gold prices often increase when geopolitical threats remain high.

The possibility that the dollar may have formed a top is undoubtedly one factor that many investors are considering, as the stronger-than-expected US jobs report on Friday failed to deliver any more dollar strength and the greenback has fallen further so far this week. As a result, bond yields may have peaked.

Gold’s over 7% decline from its high on September 21 indicates that a short covering bounce was imminent. He is still unwaveringly confident, though, about the long-term prospects for gold because the Fed’s aggressive repricing of interest rates is almost complete, which means that going forward, the downside for bonds and, consequently, gold, should be constrained.

Some short-term strategies that may serve traders well in the current market. One way to look for new trades while the gap remains open is to zoom in on smaller time frames like the hourly, wait for a bit of consolidation, and then look for long setups once price breaks higher, or becomes about to.

A much better scenario would be for gold to fill its gap and then create fresh bullish signals to trigger another rally, which could still happen, and the trigger could be the upcoming US data releases (CPI) that will undoubtedly move the dollar and bond yields in the direction of the surprise.

Spot gold continues to hold above $1857 on Tuesday afternoon, which is the first key short-term resistance level. The next level of potential resistance is seen around $1885, followed by $1900, with the latter being the base of the previous breakdown. On the downside, the next potential support level is Friday’s high at $1835. It is worth noting that the precious metal is trading at $1859.65 per ounce at the time of writing.

The release of PPI and Core PPI figures, as well as the minutes of the FOMC meeting, are anticipated for Wednesday. On Thursday, the most recent inflation data is anticipated. The headline and core CPI figures are expected to rise by 0.3% and 0.2% m/m, respectively. Used car prices are expected to decrease core goods prices, while shelter is expected to boost core services.