Gold May Find no Support Soon

Gold prices are going down by 0.5% to $1907 per troy ounce this week. This may seem of no importance in ordinary situation, as the primary support at $1900-1920 per ounce is intact. But this is no ordinary situation as the support will move up to $1910-1930 per ounce. Hovering below $1910 level may mean for prices an elevated possibility to dive below $1850 per ounce from the technical point of view. 

There are no fundamental insights for such dive, especially after August inflation report in the United States. CPI went up to 3.7% YoY from the 3.2% YoY in July, while U.S. 10-year Treasuries yields are unchanged at 4.26%. This means that real interest rates in the United States are lower amid higher inflation increasing gold investment attractiveness. Core CPI that is calculated without volatile food and energy prices at 4.3% compared with 4.7% a month before confirmed that the inflation spike originated from higher fuel prices. 

Moreover, rising inflation should push the Greenback up, but the U.S Dollar deteriorated on the news. It has recoup its losses after the publication of producer prices in August in the United States that demonstrated much higher than expected spike at 0.7% MoM and 1.6% YoY together with the continues surge in retail sales that was reported at 0.6% up in August compared to 0.2% expected. Investors understand that the nature of this inflation is primarily associated with the rise of crude prices in the last two months. But elevated retail sales also point to a rising wages that could generate additional inflation.

ETF SPDR Gold Trust (GLD) continues to report capital outflows, although they have not accelerated during the last week or month. This demonstrates that gold is of low interest for investors now. If gold prices will move above $1910 per ounce by the end of this week and will continue to test this level during the next week it will become a retest of the broken support, and may result in gold prices fall to $1850 per ounce.