Gold Prices Bounces Back On Strong CPI But Preserve January Range

Fundamental Forecast for Gold: Neutral

Gold prices are on pace for the largest weekly advance since August and snap a two-week losing streak with the precious metal rallying more 2.8% to trade at 1353 ahead of the New York close on Friday. The gains comes alongside a continued rebound in equity markets with all three major U.S. indices trading higher by more than 4% on the week.

A strong print on the U.S. January Consumer Price Index (CPI) on Wednesday saw gold prices rally to fresh weekly highs with the advance paring all of the early-February losses. The recent uptick in the inflation outlook has fueled expectations that the Federal Reserve may have to hasten the pace/scope of future rate hikes with Fed Fund Futures now pricing an 83% likelihood for a hike in March. Still, yields have struggled, trading well off fresh yearly highs late in the week.

Last week we postulated that, “Gold is caught in a tug-of-war from a fundamental standpoint. An increase in inflation expectations would typically be supportive but the focus on how this may impact the path for monetary policy continues to outweigh sentiment.” Despite this week’s strong CPI release, price action was a clear indicator that sentiment may have shifted with the U.S. Dollar coming under considerable pressure as traders piled into gold.

That said, the inflationary outlook may reignite demand for the precious metal as a store of wealth and a hedge against capital delusion. Underlying this backdrop are a continued rise in U.S. Treasury yields with the 10-year note testing multi-decade resistance. From a technical standpoint however, gold has carved out a well-defined yearly opening range within the broader uptrend with prices trading just below the range highs into the close of the week.