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Gold price (XAU/USD) builds on the previous day's mixed US macro data-inspired recovery from the $2,600 neighborhood or a nearly three-week low and gains positive traction for the second straight day on Friday. US data published on Thursday showed that the annual rise in the headline US Consumer Price Index (CPI) was the lowest since February 2021 and a surge in the weekly jobless claims. This, in turn, suggested that the Federal Reserve (Fed) will continue cutting interest rates, which keeps the US Dollar (USD) bulls on the defensive below the highest level since mid-August and benefits the non-yielding yellow metal.

Meanwhile, the markets now seem to have fully priced out the possibility of a more aggressive easing by the Fed and another oversized interest rate cut in November. The expectations were reaffirmed by the September FOMC meeting minutes, which, in turn, acts as a tailwind for the Greenback and might cap the Gold price. This, along with hopes that China will announce more fiscal stimulus measures on Saturday to boost growth in the world’s second-largest economy, might keep a lid on the safe-haven precious metal. This, in turn, warrants some caution for aggressive bullish traders ahead of the release of the US Producer Price Index (PPI).

Daily Digest Market Movers: Gold price is underpinned by bets for more interest rate cuts by Fed, subdued USD demand

The US Labor Department reported on Thursday that the headline Consumer Price Index rose 2.4% in the 12 months through September, while the core gauge, which excludes food and energy prices, climbed 3.3%. 

The stronger US consumer inflation data fueled speculations about a slower pace of rate cuts by the Federal Reserve and lifted the US Dollar to a nearly two-month top, though the initial reaction faded rather quickly. 

The number of Americans seeking unemployment benefits increased by 33,000, to a seasonally adjusted 258,000 in the week ended October 5 vs. 230,000 expected and pointed to signs of weakness in the US labor market. 

Given that the Fed has shifted its focus on obtaining maximum sustainable employment, the mixed data suggests that the US central bank will continue cutting interest rates and continue to benefit the non-yielding Gold price. 

Meanwhile, the yield on the benchmark 10-year US government bond manages to hold above the 4% threshold, which acts as a tailwind for the Greenback and might keep a lid on any further gains for the XAU/USD. 

China's finance ministry will hold a briefing on Saturday and release more details of fiscal stimulus measures, underpinning the risk sentiment and contributing to capping any meaningful upside for the commodity.

Traders now look forward to the release of the US Producer Price Index (PPI) report, which will drive the USD demand and produce short-term opportunities around the precious metal heading into the weekend.

Technical Outlook: Gold price seems poised to appreciate further and aim to challenge all-time high near 2,685-2,685 area

From a technical perspective, the overnight goodish rebound from the vicinity of the $2,600 mark and the subsequent move back above the $2,630 static support breakpoint-turned-resistance favors bullish traders. Moreover, oscillators on the daily chart hold in positive territory and suggest that the path of least resistance for the Gold price is to the upside. Hence, some follow-through strength towards the $2,657-2,658 horizontal barrier, en route to the $2,670-$2,672 supply zone, looks like a distinct possibility. The momentum could eventually lift the XAU/USD to an all-time high, around the $2,685-2,686 region touched in September. This is closely followed by the $2,700 mark, which if cleared will set the stage for an extension of a well-established multi-month-old uptrend.

On the flip side, the Asian session low, around the $2,630-2,628 region, now seems to protect the immediate downside, below which the Gold price could challenge the $2,600 pivotal support. A convincing break below the latter will be seen as a fresh trigger for bearish traders and pace the way for deeper losses. The XAU/USD might then extend the corrective decline towards the next relevant support near the $2,560 zone en route to the $2,535-2,530 region before eventually dropping to the $2,500 psychological mark.

Source: FXSTREET

US inflation came in slightly above expectations, but a jump in weekly jobless claims shifted the focus to the need for further policy easing, dampening speculation that the Fed may not cut rates in November.

Consumer prices rose 0.2% m/m in September, the same as the previous month, while annual inflation slowed from 2.5% to 2.4%, above expectations of 2.3%. Housing and food were important drivers, accounting for three-quarters of the total price increase.

The core index, which excludes energy and food prices, accelerated its annual growth rate from 3.2% to 3.3%, the first acceleration in a year and a half. This proves that slowing inflation is no easy task in the context of full employment and is mediated by low oil and fuel prices.

The impact of accelerating core inflation—usually a bullish factor for the dollar—was overwhelmed this time by an unexpected jump in jobless claims last week. Initial claims were reported to have risen to 258K from 225K the previous week and an expected 231 K. The current level is the highest since last August and the fourth highest in almost three years as the US labour market recovered from the shutdown shock.

About two months ago, financial markets reacted nervously to employment signals, but the return of weekly claims to normal levels reassured investors that we were seeing a short-term spike rather than a trend reversal. Now, the situation is reversed: strong NFPs versus the alarm from the weekly numbers.

The dollar fluctuated between 0.4% and 0.1% in the first moments after the data was released but has only lost 0.1% at the time of writing on such conflicting data. Perhaps investors will now eagerly look for signals from Fed members to learn their assessment of the situation, which the market will follow.

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[News Details] 

[Today's Focus]

Macro:

The Consumer Price Index (CPI) rose 0.2% month-on-month (m/m) in September, a tenth of a percentage point (pp) above the consensus forecast. On a twelve-month basis, CPI fell to 2.4% (from 2.5% in August).

Energy prices (-1.9% m/m) were again a drag on headline inflation, almost entirely driven by a pullback in gasoline prices (-4.0% m/m). Conversely, food prices sharply accelerated last month, rising 0.4% m/m – its strongest monthly gain since January.

Excluding food and energy, core prices rose 0.3% m/m, as it did the preceding month. The twelve-month change ticked up 0.1pp to 3.3%, while the three-month annualized rate rose to 3.1% (from 2.1% in August).

Price growth on core services rose a “soft” 0.4% m/m (0.38% m/m unrounded), in line with August’s gain.

Primary shelter costs were up 0.3% m/m, following a gain of 0.5% m/m in August. The deceleration was driven by a slowing in both Owners’ Equivalent Rent (to 0.4% m/m from an outsized gain of 0.5% m/m in August) and Rent of Primary Residence (0.3% from 0.4% m/m). Over the last twelve months, primary shelter costs are up 5.1%, well off their 2023 highs of over 8% but still a few percentage points above the pre-pandemic pace of growth when inflation was running closer to 2%.

Non-housing services inflation (aka “supercore”) rose by 0.4% m/m, also matching last month’s gain. The continued strength was primarily driven by another strong advance in vehicle insurance (+1.2% m/m), airline fares (+3.2% m/m) and medical costs (+0.7% m/m).

Core goods prices ticked higher by 0.2% m/m, with higher apparel (+1.1% m/m) and new (+0.2% m/m) and used (+0.3% m/m) vehicle prices all contributing to September’s uptick.

Key Implications

This morning’s CPI report showed little progress on the inflation front in September. Even with some cooling in shelter costs, service prices remained elevated, while core goods added to overall inflationary pressures (a first in seven months), pushing the three-month annualized rate up to 3.1% – the firmest pace of price growth since May.

With progress on the inflation front stalling and last week’s employment report still showing a relatively sturdy labor market, the Fed is likely to slow the pace of rate cuts next month and deliver two additional quarter-point cuts by year-end. While further cuts are in the pipeline for 2025, the Fed will remain data dependent as they continue to adjust the policy rate lower.

Global Macro and Markets

Global Markets: Considering the disappointing CPI data yesterday, it is a slight surprise to see US Treasury yields heading lower again, though they had risen a fair bit in recent days, so perhaps yesterday's moves reflected a bit of re-positioning. Various Fed officials shrugged off the CPI data, though Raphael Bostic said he was comfortable skipping a meeting if the data suggested that was appropriate. 2Y yields fell 6.4 basis points. The 10Y Treasury yield only fell 1.2bp to 4.061%.  EURUSD tested the downside at 1.09 yesterday, but partially recovered to 1.0933, only slightly down on the day. The AUD actually rose slightly to 0.6741, though Cable was also lower at 1.3057 and the JPY managed to make some gains, as USDJPY declined to 148.61.  There was a similarly mixed picture for other Asian currencies yesterday. The SGD and CNY both followed the AUD and JPY stronger. But most SE Asian currencies lost between a quarter and half a per cent against the USD on Thursday. US stocks were slightly lower yesterday. But it was another good day for Chinese stocks as optimism again rose ahead of tomorrow's Ministry of Finance statement.

G-7 Macro:  US September CPI was higher than expected on both core and headline measures. The headline index rose 0.2% MoM, (0.1% expected), and this meant that inflation only fell to 2.4% YoY (from 2.5%). The core measure rose 0.3% MoM, and the core inflation rate actually rose to 3.3% YoY from 3.2%. There is lots of detail and nuance to this report as well as some weaker weekly jobless claims figures to throw into the mix, and James Knightley’s note goes into all the gory details.

We also got minutes of the ECB’s September meeting yesterday. Carsten Brzeski pulls these apart in his note, where he lays out the risks to the October rate cut thesis.

Today’s data includes the US September PPI numbers, some of which could be important for the upcoming PCE inflation release. We also have University of Michigan consumer confidence data. The UK releases a barrage of activity and trade data today.

South Korea: The Bank of Korea meets today and the market is widely expecting the BoK to cut by 25bp. Inflation eased to 1.6% YoY in September, below the BoK's 2% target for the first time since March 2021. The housing market in the Seoul metropolitan area seems to be gradually cooling down thanks to tighter mortgage rules and other home purchase measures. These two factors support the BoK's easing. However, the BoK communications should remain hawkish and not commit to further rate cuts.

Although the market consensus is for a 25bp cut, there is a slight chance that the BoK could surprise the market with a hold decision. The BoK may worry that the Middle East conflict could push up inflation again and signs of a cooling housing market may not be strong enough for the Bank to move.