Gold price finds cushion as Fed to pause its aggressive rate hike cycle

• Gold price looks supported but needs to pass through more filters for a confident reversal.
• US inflation grew slower than forecasted in July as lower second-hand automobile prices offset rising rentals.
• US President Biden restricts some new investment in China in sensitive technologies.

Gold price (XAU/USD) faces selling pressure as the United States Producer Price Index (PPI) accelerated higher than expected after a modest rise in the Consumer Price Index (CPI) for July.  The precious metal attempted a recovery, but an upside isn’t warranted as investors are worried that inflation remains sticky amid rising rental prices. Consumer and producer inflation rose in July but is still insufficient to force the Federal Reserve (Fed) to raise interest rates further in September.

Producers elevate the prices of goods and services at factory gates by 0.3% while analysts forecasted a pace of 0.2%. Annual headline PPI rose to 0.8% against surprisingly higher expectations of 0.7%. Headline PPI rose beyond expectations due to a recovery in gasoline prices in July. Also, monthly core PPI grew at a 0.3% pace, higher than estimates of 0.2%. 

US inflation rose at a steady pace of 0.2%, as expected by investors and aligned with the Fed’s required inflation rate of 2%. The recovery move was the Gold price is supported by a restricted upside in the US Dollar as chances of a rate cut in 2024 increase. San Francisco Fed President Mary Daly joined policymakers Patrick Harker and John Williams to open the door for rate cut discussions in 2024 depending on the evolution of the inflation economy.

Daily Digest Market Movers: Gold price looks supported despite robust US PPI growth

• Gold price gauges support near $1,912.00 after a sheer sell-off. Still, the downside seems favored as United States CPI data for July showed inflation remains sticky.
• The US Consumer Price Index rose at a slower-than-forecasted pace in July. Higher rentals and a modest recovery in gasoline prices were broadly offset by the lower cost of second-hand automobiles.
• The monthly headline and core inflation grew by 0.2%, as expected by analysts.
• Core annual CPI softened to 4.7% from estimates and the prior release of 4.8%, while headline inflation accelerated modestly to 3.2% against the former release of 3.0% but remained marginally below the consensus of 3.3%.
• The 0.2% monthly increase is consistent with the Federal Reserve’s desired inflation rate of 2%.
• A modest rise in US inflation supports the Fed to keep interest rates unchanged in September’s monetary policy.
• As per the CME Group Fedwatch tool, traders see less than a 10% chance that the US will raise interest rates next month.
• The scenario of limited inflation and a historically low Unemployment Rate suggests that the US economy will manage to avoid a recession.
• On Thursday, San Francisco Fed Bank President Mary Daly joined Philadelphia Fed Bank President Patrick Harker and New York Fed President John Williams, saying that discussions about rate cuts would take place next year but will largely depend on the economy and inflation.
• The US Dollar Index (DXY) refreshes the day's high above 102.60 as the headline PPI figure showed a rebound due to the recovery in gasoline prices.
• On Thursday, the US Department of Labor reported that individuals applying for jobless claims for the first time rose to 248K for the week ending August 4, higher than the 230K expected and the prior week's figure of 227K.
• The market mood remains cautious as US President Joe Biden announced restrictions on some new investments in China in sensitive technologies. Investors are worried that Beijing could retaliate.
• The long-awaited order authorizes the U.S. Treasury Secretary to prohibit or restrict U.S. investments in Chinese entities in three sectors: semiconductors and microelectronics, quantum information technologies, and certain artificial intelligence systems, Reuters reports.
• Commercial banks borrowing from the Fed’s emergency lending programs rose slightly for the week through August 9. Total lending from the two Fed backstop programs rose to $108.78 billion from $107.58B the prior week.

Technical Analysis: Gold price turns volatile around $1,920

Gold price rebounds after momentum oscillators on a lower timeframe reported that the bearish impulse weakened due to a decline in selling pressure. Still, for a confident reversal, the yellow metal has to pass through plenty of filters. Gold price is on tenterhooks as it has corrected to near the 200-day Exponential Moving Average (EMA) around $1,907.68. Failure to sustain above this level would likely push the precious metal into bearish territory.