Gold price and Stock markets brace for the US inflation report

Gold price news, and analysis

• How important is the expected CPI report for market sentiment?
• Key levels to monitor on the gold daily price chart

All eyes will be on the U.S. inflation figures for July, set to be released tomorrow at 4:30 PM UAE time. Investors anticipate that the year-over-year (YoY) CPI will fall below the 3% threshold, marking its lowest level in over three years. Meanwhile, the YoY core CPI is expected to decrease slightly from 3.3% in June to 3.2% in July.

The markets believe that the Federal Reserve may have delayed the start of its rate-cutting cycle and are now calling for a quicker pace to avoid a recession. Investors have already priced in a 25-basis point cut at the September meeting, but opinions are divided, with a 50:50 split on whether a 50-basis point cut will occur.

If inflation data comes in lower than expected, it would suggest that disinflation is continuing, following the pattern seen in recent months. This would increase the likelihood of a 50-basis point rate cut in September and potentially a total reduction of around 1% by the end of 2024, which could boost market sentiment, especially after last week’s turmoil caused by the unexpected hawkish stance from the Bank of Japan and growing recession fears in the U.S. following a worse-than-expected jobs report.

This scenario suggests potential weakness for the U.S. dollar, along with support for equities and gold prices. Conversely, if CPI figures come in higher than expected, the Fed might opt for a more cautious 25 basis point rate cut to prevent further deterioration in the job market, which could provide support for current U.S. dollar levels.

Gold Price Daily Chart

Chart Source: ADSS Platform

On August 2, gold corrected its upward trend, forming a lower high at $2,477/oz. Although the price retreated, it remained above the 50-day simple moving average and the upward trend line originating from the June 26 low, indicating the potential for a bullish comeback.

Currently, the price is testing the high end of the current trading zone, located between $2,478 and $2,364. A daily close above this level could encourage bulls to rally the price toward the $2,600 mark. In this scenario, resistance levels at $2,500 and $2,550 should be closely watched. Conversely, if the price fails to close above the high end of the trading zone, it may indicate a lack of momentum to sustain a higher move, potentially leading the price to revisit the low end of the trading zone.