Gold bulls gain the upper hand, and strategic buying is emerging

US data has completely dispelled the idea of raising interest rates! Thursday (November 16) entered the European market, gold maintained a narrow range of volatility momentum, currently around the 1960 dollar, but the strength of the dollar inhibited the rise. This week's series of data released in the United States confirmed that inflation slowed down, strengthening expectations for the end of the Federal Reserve's interest rate hike cycle, and gold benefited from it.

Gold prices rose on Thursday, supported by market expectations that the Federal Reserve's policy tightening cycle has ended, but the strengthening of the dollar has restrained the gains in gold prices.

Matt Simpson, senior analyst at City Index, said: "Gold rallied strongly from the 200-day moving average, giving the bulls the upper hand in the short term, so we tend to buy the dip above 1,940 as gold prices may move towards the $1,985-2,000 range."

Mr. Simpson added: "After the euphoria over the US inflation report, gold volatility has subsided and while the dollar is trying to recover some of its losses, gold looks quite comfortable around $1,960."

The dollar extended its gains following strong U.S. economic data, making gold more expensive for overseas buyers.

The dollar took hold on Thursday after two volatile days of sharp falls before rebounding as traders took incoming economic data to mean the Federal Reserve would wait longer before cutting interest rates.

The dollar index - a measure of the greenback against the euro, sterling, yen and three other currencies - rose 0.14 percent to 104.47 after rising 0.31 percent on Wednesday after falling 1.51 percent the day before.

The dollar was supported by better-than-expected retail sales data and more signs of cooling inflation, lending support to talk of a "soft landing" that would give the Federal Reserve more time before cutting interest rates.

"While inflation is down, the economy remains strong, which may even give the Fed an opportunity to raise interest rates," said James Kniveton, senior corporate currency trader at Convera, noting that Fed officials do not appear to be interested in raising rates.

US inflation is cooling

The U.S. producer price index (PPI) recorded its biggest drop in three-and-a-half years in October as gasoline prices fell sharply, the latest sign of fading inflationary pressures, while retail sales fell for the first time in seven months.

According to data released by the US Department of Labor on Wednesday, the US PPI in October slowed sharply to 1.3% year-on-year from 2.2% last month, lower than the expected 1.9%. The month-on-month growth rate fell by 0.5% and was expected to rise by 0.10%. Excluding volatile food and energy, the US core PPI also slowed sharply to 2.4% year-on-year in October from 2.7% last month, and is expected to be 2.7%.

Analysts believe that the sharp month-on-month decline in the US PPI in October may indicate that the worst of the inflation surge is over.

Before that, data released on Tuesday showed that the US CPI rose 3.2% year-on-year in October, a sharp slowdown from the previous month's 3.7%, but also lower than the expected 3.3%; the month-on-month growth rate slowed to 0% from the previous month's 0.4%, also lower than the expected 0.1%. The Fed's more focused core inflation, which excludes food and energy costs, also slowed slightly to 4% from 4.1% last month, lower than the expected 4.1%, the lowest since September 2021; the month-on-month growth rate slowed from 0.3% to 0.2%, lower than the expected 0.3%.

The Federal Reserve's interest rate hike has ended

The report, combined with slower job and wage growth, led economists to conclude that the Federal Reserve has a good chance of completing this round of interest rate hikes.

Currency traders have also changed their views on the possibility of further rate hikes by the Federal Reserve and increased their bets on a rate cut in 2024.

According to the Chicago Mercantile Exchange's FedWatch tool, traders widely expect the Federal Reserve to keep interest rates unchanged in December and are betting that it will start cutting rates by May next year.

Ben Bennett, Asia-Pacific investment strategist at Legal and General investment Management, was more cautious about the outlook. "The road to a soft landing is narrow, and this is just one step in it," he said.

"We could easily get more data in the coming weeks that the Fed needs to raise rates again or that growth is slowing and a recession is more likely."

Low interest rates enhance the attractiveness of gold because non-yielding gold is used as a hedge against inflation.

"Growing confidence around the notion that interest rates will remain high for longer is undermining gold's short-term investment appeal," ANZ analysts said in a note.

"However, we believe that following the recent price correction, strategic buying is emerging as long-term drivers remain," ANZ notes.