Gold climbed from an intraday low near $4,300 to around $4,380 after August CPI data strengthened the case for another Fed rate hike. The rally is running counter to a rates market that has grown far more hawkish, leaving $4,361 as the key level to watch.
Gold's rally after the August CPI report is becoming hard to justify through the macro data. XAU/USD climbed from an intraday low near $4,300 to around $4,380 even as the inflation report strengthened expectations for another Federal Reserve rate increase. The move pushed gold above its pre-CPI high near $4,361, while the interest rate market moved sharply in the opposite direction.
Inflation data hardens the case for a hike
August headline CPI rose 0.4% month over month and 3.4% year over year, both in line with expectations. Core CPI, however, rose 0.3% against a 0.2% consensus, while annual core inflation eased to 2.4%. The monthly reading showed that underlying price pressure remains persistent enough to keep the Fed under pressure, following Thursday's producer inflation report that had already pushed markets toward expecting tighter policy.
The rates market reacted immediately. CME FedWatch showed the probability of a September hike climbing from 72.4% to 88.8% after the CPI release, with some readings placing it above 90%. Former Fed Vice Chair Roger Ferguson said a September increase had become "far more likely than not", arguing the latest data had weakened the case for holding rates steady.
Gold's move contradicts the rates signal
Gold has risen more than 1% on the session, even though higher expected policy rates raise the opportunity cost of holding a non-yielding asset. Brent crude remains above $100 and the 10-year Treasury yield has traded close to 5%, conditions not usually associated with a gold breakout. The most credible explanation is positioning: traders who sold gold near $4,300 expecting CPI to trigger a decline were forced to cover once price cleared resistance, adding short-covering pressure on top of the initial move.
$4,361 becomes the level to watch
As long as gold holds above its pre-CPI high near $4,361, the squeeze can extend toward $4,400 regardless of the rates backdrop. A move back below $4,361 would erase the post-CPI breakout and expose gold to another test of $4,300, where the broader bearish structure tied to rising rate expectations and elevated yields would reassert itself.
Source: Commodities Analysis & Opinion (Investing.com)
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