Today gold's continued upside potential was realized, made possible by a CPI report that came in exactly in line with economists' expectations. The Consumer Price Index increased 0.1% in July from the previous month, according to data released Wednesday by the Bureau of Labor Statistics. Core CPI, which strips out volatile food and energy prices, rose 0.2%. This was the relief gold needed to continue higher.
Gold futures gained $41.20, or 0.93%, in trading today and made its seventh consecutive daily candle with both higher highs and higher lows. Gold managed to stab further past the 100-day simple moving average and closed just under the resistance we discussed yesterday and illustrated on our charts at $4,474. This resistance level is based on July 17th’s intraday high, where our shorter-term descending triangle began. This price level also aligns with bottoms formed from last December through March and May.
This level, along with the 100-day SMA, is gold’s next real hurdle. Even if gold doesn’t punch straight through this resistance, it is likely to move beyond it as long as prices can remain above $4,200 — or especially if they can hold above $4,400. Our target for this move is $4,600 in futures ($4,500 in spot gold). We arrived at this conclusion by measuring the widest point of the short-term descending triangle and projecting a line of equal length from the breakout point. $4,600 is also within dollars of the 200-day SMA in gold futures, reinforcing this price point as a key technical level.
The broader significance of today’s CPI report extends well beyond the headline numbers. For weeks, markets had been pricing in a strong likelihood of another Federal Reserve rate hike at the September FOMC meeting — odds that favored a September hike according to the FedWatch tool . That anxiety had been an undeniable headwind for gold. Wednesday’s report, landing exactly on consensus across every major measure, worked in concert with last week’s unexpected net job loss in July to materially shift that calculus causing the odd’s to now favor a hold at the next FOMC meeting for the first time in months.
As Morgan Stanley’s chief economic strategist Ellen Zentner noted, the “no need to hike rates” narrative that took hold after the labor market stumbled is now reinforced. The Fed does not meet again until September, and policymakers will have one additional inflation reading due September 11th before they must make their decision. Barring a significant upside surprise in that report, markets are increasingly positioned for a hold, if not the beginning of an eventual easing cycle. For gold, that shift is precisely the macro tailwind it needed. Rate-hike fear is the primary ceiling for a non-yielding asset. As that ceiling lifts, gold’s technical setup, seven consecutive sessions of higher highs and higher lows, a clean breakout from a descending triangle, and a clear measured-move objective at $4,600 has room to fully express itself. Watch the close relative to $4,474; a convincing break above it keeps the clock ticking toward our target.
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Wishing you, as always, good trading.
