Gold price subdued due to interest rate puzzle

• Gold price struggles for a decisive move despite a slightly hotter inflation report.
• The US Dollar demonstrates a volatility compression as higher headline CPI failed to boost Fed hawks.
• The release of the US PPI and Retail Sales might boost price action in Gold.

Gold price (XAU/USD) remained subdued on Thursday as a stickier US inflation report for August confused investors about further direction. The precious metal strives for a decisive move as the market hopes that the impact of higher headline inflation due to rising gasoline prices remains limited to the headline Consumer Price Index (CPI). The US Dollar demonstrates a volatility compression after a slightly hot inflation report failed to prompt hawkish Federal Reserve (Fed) bets.

After the US inflation report, investors shifted their focus to the Producer Price Index (PPI) and consumer spending data for August, which will solve the interest rate puzzle further. The current restrictive interest rate cycle has failed in denting labor demand and consumer spending significantly, but the market remains worried that a “higher for longer” rate context could dampen the broader picture ahead.

Daily Digest Market Movers: Gold price remains under pressure amid sideways US Dollar

• Gold price is exposed to a fresh downside move as the US inflation for August turned out stickier than expected due to a significant rise in gasoline prices.
• US Bureau of Labor Statistics reported that monthly headline inflation grew at a 0.6% pace as anticipated by market participants, higher than the former reading of 0.2% due to a rally in gasoline prices. Annualized headline CPI accelerated to 3.7% vs. expectations of 3.6% and the former release of 3.2%.
• Core CPI that strips off volatile food and oil prices expanded at a higher pace of 0.3% than expectations and the prior reading of 0.2%. US core CPI, on an annual basis, softened to 4.3% as projected against July’s reading of 4.7%.
• Overall energy prices that include components like gasoline, electricity, and utility gas prices spiked 5.6% in August due to the global oil rally that pushed headline inflation higher at a stronger pace.
• Federal Reserve policymakers tend to consider core CPI specifically, but higher headline inflation could prompt input prices for core goods and encourage them to keep doors open for further policy tightening.
• As per the CME Fedwatch Tool, traders see a 97% chance for interest rates to remain steady at 5.25-5.50% at the September 20 Federal Open Market Committee (FOMC). The bet was 93% before the inflation data release. For the rest of the year, traders anticipate almost a 56% chance for the Fed to keep monetary policy unchanged.
• JP Morgan Asset Management commented Wednesday that it does not anticipate the Fed implementing further interest rate hikes this cycle. They said that the impact of the ongoing rise of oil prices in early September on inflation will be limited.
• Inflation data for August remained insufficient to boost hopes for more interest rate increases from the Fed in 2023, but a likely slowdown in the economy cannot be avoided. The Fed is expected to keep interest rates “higher for longer” as inflation in excess of the required rate seems stickiest. The Unemployment Rate is seen rising further due to a poor demand outlook and higher interest rates.
• The US Dollar Index (DXY) trades in a limited range around 104.70 as the upside is restricted amid expectations that the Fed is done with hiking interest rates, while the downside is being supported by a slightly hotter inflation report.
• More volatile price action is anticipated in the US Dollar as the Producer Price Index (PPI) and Retail Sales for August will be published at 12:30 GMT.
• Headline PPI is seen expanding at a higher pace as gasoline prices turned costly in August, while core PPI that excludes oil and food prices softened.
• As per estimates, monthly Retail Sales data expanded at a slower pace of 0.2% than the 0.7% pace recorded for July. A slowdown in consumer spending momentum indicates that higher inflationary pressures are biting household income.

Technical Analysis: Gold price trades around $1,900

Gold price hovers near a three-week low, marginally above the crucial support of $1,900. The precious metal struggles to discover bids as the inflation report for August indicates upside risks to headline inflation due to rising gasoline prices. The yellow metal fails to sustain above the 200-day Exponential Moving Average (EMA), which trades at around $1,910.00. The declining 20 and 50 EMAs portray a bearish short-term trend.