Gold moved back towards $4,200 on Friday as falling Treasury yields and a weaker dollar helped bullion absorb another round of surprisingly strong US inflation data.
US gold futures rose about 1.7% to $4,177.30 after Federal Reserve Chair Kevin Warsh declined to signal what policymakers will do at their October 27-28 meeting .
That matters because the backdrop should normally be hostile to bullion. Consumer inflation accelerated to 3.7% in September and producer prices surged 6.3% from a year earlier.
Yet the 10-year Treasury yield has fallen towards 5.08% and the dollar is heading for its first weekly decline in five weeks.
Hot inflation is no longer producing the expected gold reaction
Thursday’s PPI figures looked tailor-made for another bullion sell-off . Producer prices jumped 1.3% month on month and 6.3% annually, while core PPI rose 0.7% from August.
Instead, Treasury yields moved sharply lower. The 10-year yield dropped more than eight basis points towards 5.08%, while the 30-year fell towards 5.42%.
A flight into government bonds during the technology sell-off outweighed the immediate inflation signal.
TD Securities strategists Ryan McKay and Bart Melek said easing rates and moderating dollar strength were encouraging systematic traders to cover bearish precious-metals positions.
They also see ETF inflows and central-bank buying providing strong support around $4,000-$4,100.
The important question is whether markets have already priced enough Fed hawkishness that even poor inflation data can no longer push yields sustainably higher.
Warsh takes the immediate October shock off the table
Warsh did little on Friday to revive that pressure.
Speaking at the IMF-World Bank meetings in Bangkok, the Fed chair said he would not prejudge the October decision and offered no indication that another increase is imminent. The Fed raised rates by 25 basis points in September to 3.75%-4%.
That is not a dovish pivot. Further tightening remains possible, and inflation is still well above target.
But the absence of a fresh hawkish signal matters when markets had spent the week debating whether September’s data demanded another immediate move.
Before Warsh spoke, Infinox analyst Thadeu Dos Santos told The Wall Street Journal that a hawkish message could reverse the Treasury rally and pressure gold, while patience from the Fed would allow lower yields to support bullion.
$4,200 is becoming the real positioning test
That leaves $4,200 as the key hurdle, as FXStreet identifies resistance around $4,200, followed by roughly $4,245. On the downside, support remains concentrated around the low-$4,000 area.
Positioning could make any breakout more violent. Jefferies estimates trend-following funds have shifted to roughly $10 billion of net short gold exposure even as central banks continue accumulating bullion.
The bank argued in analysis reported by MarketWatch that the mismatch raises the risk of a short squeeze if investors conclude Treasury yields have peaked.
The post Gold rises towards $4,200 as bears lose their grip despite hotter US inflation appeared first on Invezz
