Gold price moves higher ahead of US CPI report, not out of the woods yet

• The price of gold fell back to a multi-week low amid the subdued USD price action on Thursday.
• Bets on a regular 25bps Fed rate cut in November should keep a lid on XAU/USD.
• Investors are now looking to the release of the US CPI report for fresh directional momentum.

The price of gold (XAU/USD) is rising during the Asian session on Thursday and for now appears to have snapped a six-day losing streak to a near three-week low retested the previous day. The US Dollar (USD) is entering a bullish consolidation phase as traders choose to stay on the sidelines ahead of the release of the US Consumer Price Index (CPI) later today. Turning to key data risk, some repositioning trades are proving to be a key factor providing support to the precious metal.

However, any significant upside move in the gold price appears elusive amid diminishing chances for more aggressive policy easing by the Federal Reserve (Fed). Expectations were reaffirmed by the minutes of the September FOMC meeting, which keep US Treasury yields high and should cap the unprofitable yellow metal. Therefore, a strong follow-through purchase is required to confirm that XAU/USD’s corrective slide from the all-time high has run its course.

Daily Digest Market Movers: Gold price moves higher on some repositioning trades ahead of US CPI report

• Minutes from the FOMC’s September meeting showed that a majority supported cutting the rate by 50 basis points because the committee was confident that inflation would move toward the 2 percent target.
• Some participants, however, indicated they would have preferred just a 25 bps rate cut, citing still high inflation, solid economic growth and a low unemployment rate.
• Moreover, there was a consensus that excessive interest rate cuts will not lock the Federal Reserve into a specific pace for future cuts, lifting the US dollar to a near two-month high.
• Dallas Fed President Lorie Logan emphasized the significant uncertainties surrounding the economic outlook, although she said she favors smaller rate cuts going forward.
• Boston Fed President Susan Collins stressed that policy is not on a set path and will remain data-driven, and that it is important to maintain healthy labor market conditions.
• San Francisco Fed President Mary Daly said one or two more rate cuts were likely this year, although she noted that a 50 bps cut in September says nothing about the size of the next cuts.
• Traders now have a higher chance that the Fed will cut borrowing costs by just 25 bps in November and a more than 20% chance that they will keep rates on hold in November.
• The yield on the interest-sensitive two-year U.S. government bond hit its highest since Aug. 19, and the benchmark 10-year Treasury yield climbed to levels not seen since July 31.
• Investors remained wary of escalating tensions between Israel and Iran, with Israeli Defense Minister Yoav Gallant vowing that a strike against the latter would be “lethal, precise and surprising.”
• This, along with some repositioning trades ahead of the crucial US Consumer Price Index (CPI) report, provides some support to the safe-haven gold price during Thursday’s Asian session.

Technical outlook: Gold price needs to accept below $2,600 for bears to take control

Technically, this week’s breakdown below the $2,630 area, representing the lower end of a short-term trading range, was seen as a key trigger for bearish traders. That said, the oscillators on the daily chart – although they have lost some action – remain in positive territory. Moreover, the price of gold, so far, has managed to stay above the $2,600 mark. This makes it prudent to wait for a sustained break and acceptance below said handle before positioning for deeper losses. XAU/USD could then extend the fall to the next relevant support near the $2,560 area on its way to the $2,535-2,530 region before finally breaking down to the psychological $2,500 level.

On the other hand, the break point of the trading range support around the $2,630-2,635 region seems to act as an immediate obstacle now. Any further rise could be seen as a selling opportunity and remains capped near the horizontal barrier of $2,657-2,658. Sustained strength beyond the latter could lift gold to the $2,670-2,672 supply zone, above which bulls could look to challenge the all-time high around the $2,685-2,686 zone reached in September. This is closely followed by the $2,700 level, which, if cleared, will set the stage for an extension of a well-established multi-month uptrend.