Gold Price Analysis: XAU/USD bulls are moving on for the kill

• Gold bulls move in as the US dollar gives back ground.
• The risk rally has weighed the greenback into the final day of the week and earnings that are due. 

Gold ended on Wall Street at around $1,670 and down by over 0.5% on the day in the face of sky-high inflation in the US and on a global scale. XAU/USD travelled between a low of $1642.46 from a high of $1,682.49. However, it was a two-way street for the most part following a suspicious move in the yen that caught the market off guard and subsequently, led to further bizarre price action across asset classes.

The yen strengthened vs.s the dollar by over 100 pips in a matter of a minute in trade following the release of the US Consumer Price Index that firmed the grounds for further strong rate hikes from the Federal Reserve. Wall Street stock indexes made a dramatic recovery as well, closing sharply higher after an earlier sell-off on Thursday while the US dollar gave up the knee-jerk gains. Instead, investors poured back into riskier bets after digesting a red-hot US inflation reading that fueled bets for a big Federal Reserve rate hike next month. The S&P 500 closed the session up 2.6% after declining 5.7% in the previous six sessions. Earlier Thursday it fell 2.3% to its lowest level since Nov. 2020. 

US CPI buries Fed pivot sentiment 

First off, US inflation eased less than expected in September to 8.2%, and underlying prices excluding energy and food prices accelerated to a new four-decade high.

• US CPI (MoM) Sep: 0.4% (est 0.2%; prev 0.1%).
• US CPI (Y0Y) Sep: 8.2% (est 8.1%; prev 8.3%).
• US CPI Core (M0M) Sep: 0.6% (est 0.2%; prev 0.6%).
• US CPI Core (Y0Y) Sep: 6.6% (est 6.5%; prev 6.3%).

Core CPI gained at its highest annual pace in 40 years, rising 0.6% for the month and 6.6% for the year and Fed funds futures are now pricing in 75 bps in December, up from 50. Moreover, terminal rate expectations rose to 4.85% in March. As a consequence, the 10-year Treasury yield rallied to 4.080% while the 2-year yield was up to 4.535%. As measured by the DXY index, the US dollar dropped by 1% to almost 112.14 as risk sentiment returned to markets. At the time of writing, the DXY index is down by some 0.73% having fallen from a high of 113.92 to a low of 112.147 so far. 

Looking forward, the big question is; ''is the risk rally logical, or is it just a short squeeze or a dead cat bounce?''

''It seems the market is embracing aggressive monetary policy and focus is likely to shift to the consequences of such tightening,'' analysts at ANZ Bank argued. 

Gold technical analysis

The price is carving out a W-formation that could lead to a move higher for the day ahead, certainly if the US dollar continues to bleed out. The price has already made a 61.8% retracement and is holding near to there while in demand territory.