Today, the most significant statistics associated with modern finance for the United States, which is the greatest economy in the world, have provided traders with the much-needed good news they have been looking for. The market did not price in the lower US CPI number, a move that gold traders are enthusiastically celebrating. In light of the US CPI, we believe it is more probable that a rate drop will occur in September, but speuclators and gurus have increased the odds of a rate cut occurring in July. Following this event, the Federal Open Market Committee meeting and the dot plot will be the primary focal points for traders and investors, and the FOMC event will unfold later in the day. We expect the Fed's base case to be that the data was fantastic, and that we need to see more data in the same direction to have more confidence in our ability to reduce interest rates.
US CPI Data
Today's reading has shown that the US CPI numbers have dropped further. The US core CPI m/m came in at 0.2% against the forecast of 0.3%—a reading that was much better than expectations and something that the market players didn't anticipate. The previous number for the US CPI m/m was 0.3%.
The US CPI m/m data printed a value of 0.0% against the forecast of 0.1%—again, a number that was better than the forecast and something that gold players didn't consider as their base case scenario. The reading for the previous month was 0.3%, which, when compared to the previous number, explains why the dollar index plummeted significantly. This was likely due to traders increasing their bets to curtail interest rates sooner rather than later, potentially leading to more rate cuts than currently anticipated.
The CPI data y/y also dropped to 3.3% from its previous reading of 3.4%.
Don't be too optimistic
Once again, we think that traders need to clear the noise and pay attention to details. There is no doubt that gold traders have been very cognizant of everything. This is due to the fact that the price of gold did not experience a significant decline on Friday, despite the significant noise generated by the US Non-Financial Productivity (NFP) report, which significantly outperformed the expectations of the hawks.
Similarly, the data produced by the US CPI was excellent news, but let's not forget that the number is still over one percent higher than the Fed's desired target of 2%. The Fed has a long way to go, and if we look at the gold price action, the moves have been significant, as traders are pricing a more dovish move from the Fed. In fact, it won't be wrong to say that they are celebrating their victory by being right about the actual direction of the dollar index, which is more dependent on US CPI data.
FOMC in Focus
Traders should approach everything cautiously. I say this because everything now revolves around the Fed's dot plot and their upcoming conference. In general, I would argue that today is not a good day for hawks and that, in order for them to keep up with the doves today, they would need a significant amount of coffee.
Jerome Powell, the Chairman of the Federal Reserve, is expected to oppose early rate cuts when he comes under scrutiny later today. His baseline is more than likely to be that the data was great, but we need to have more data in the same direction to be confident in our approach.
Gold Price Action
Although the gold price's massive move is intriguing, traders should be aware that the prices are far from their mean, indicating a high likelihood of a retracement or slowdown in the current momentum. The red horizontal line, or resistance zone, is where the price may struggle to move above, and if broken, it may begin a new upward trend. The green horizontal line represents the price's immediate support.
