Gold Jumps as Strong CPI and Weak Retail Sales Spook Markets

Gold prices have posted strong gains in Wednesday’s North American session. Currently, the spot price for an ounce of gold is $1348.04, up 1.41% on the day. On the release front, January consumer inflation beat expectations. CPI jumped 0.5%, above the estimate of 0.3%. Core CPI remained steady at 0.3%, edging above the forecast of 0.2%. Consumer spending reports in January were dismal. Retail Sales was flat at 0.0%, short of the estimate of 0.5%. Core Retail Sales declined 0.3%, well off the forecast of +0.2%.

A strong CPI release for January has sent the US dollar lower against the major currencies, and gold has jumped on the bandwagon. Concerns of high inflation was a catalyst for the market sell-off last week, and fears of a resumption in the downward spiral are weighing on the dollar. If investors react negatively and ditch the markets yet again, safe-haven assets like gold will likely be the big winners. Gold prices were down in the first half of February, but gold has recovered these losses, after posting strong gains of 2.4% this week.

What about the Federal Reserve? Currently, the Fed is planning three hikes this year, but that could change to four or even five hikes, if inflation continues to head upwards and the robust US economy maintains its strong expansion.  The new head of the Federal Reserve, Jerome Powell, received a rude welcome from the stock markets, as he started his new position last week. Powell sought to send a reassuring message on Tuesday, saying that the Fed is on alert to any risks to financial stability. However, it is clear that the Fed’s hand is limited when it comes to stock markets moves, and the volatility which we saw last week could resume at any time.

XAU/USD Fundamentals

Wednesday (February 14)

• 8:30 US CPI. Estimate 0.3%. Actual 0.5%
• 8:30 US Core CPI. Estimate 0.2%. Actual 0.3%
• 8:30 US Core Retail Sales. Estimate 0.5%. Actual 0.0%
• 8:30 US Retail Sales. Estimate +0.2%. Actual -0.3%
• 10:00 US Business Inventories. Estimate 0.3%. Actual 0.4%
• 10:30 US Crude Oil Inventories. Estimate 2.8M. Actual 1.8M

Thursday (February 15)

• 8:30 US PPI. Estimate 0.4%
• 8:30 US Empire State Manufacturing Index. Estimate 17.7
• 8:30 US Philly Fed Manufacturing Index. Estimate 21.5
• 8:30 US Unemployment Claims. Estimate 229K
• 10:00 US Business Inventories. Estimate 0.3%. Actual 0.4%.
• 10:30 US Crude Oil Inventories. Estimate 2.8M. Actual 1.8M

*All release times are EST

*Key events are in bold

XAU/USD for Wednesday, February 14, 2018

XAU/USD February 14 at 12:25 EST

Open: 1329.36 High: 1349.44 Low: 1318.00 Close: 1348.04

XAU/USD Technical

• XAU/USD posted slight gains in the Asian session but gave up most of these gains in European trade. The pair has posted sharp gains in North American trade
• 1337 has switched to support following strong gains by gold on Wednesday
• 1375 is the next resistance line
• Current range: 1337 to 1375

Further levels in both directions:

• Below: 1337, 1307, 1285 and 1260
• Above: 1375, 1416 and 1433

OANDA’s Open Positions Ratio

XAU/USD ratio is showing little movement in the Wednesday session. Currently, long and short positions are almost evenly split. This is indicative of a lack of trader bias as to what direction XAU/USD takes next.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.