For now, the direction of gold continues to be dictated by movements in the dollar (as seen below) and developments in the short-term interest rate market where traders place bets on the direction of Fed Funds rates and those bets are currently pricing in one full 25 bps rate hike by November before the attention turns to rate cuts with the first now priced in for March next year. As such, it is not a forecast that should trigger the kind of negative response currently seen in gold, and it highlights the fact the market fear more hikes have yet to be priced in. Especially if inflation does not fall at a pace acceptable by the FOMC.
While the short-term technical outlook may deteriorate further on a break below $1900, the next key US economic print will be Friday’s PCE (Personal Consumption Expenditure) deflator, the Fed’s preferred inflation measure. The headline is expected to show a price-supportive drop to 3.8% from 4.4% last month, but with core inflation expected to show continued stickiness at an unchanged 4.7%.