Gold Price Setup Ahead of US CPI: Bear Flag Hints at Further Downside

Gold Price Setup Ahead of US CPI: Bear Flag Hints at Further Downside

Gold Price Setup Ahead of US CPI – Bear Flag Hints at Further Downside
The price of gold rose on Monday after falling to a seven-month low last week. This came as traders awaited US CPI data which is expected to show a modest rise in consumer prices, while core inflation is seen easing in the latest report. However, an uptick in US CPI may be a headwind for gold, given that the Federal Reserve will be considering a series of jumbo rate hikes next month.

The Fed’s policy rate is seen moving up to a peak of around 5.15% in the coming years, with a further series of cuts on the table in 2024. Philadelphia Fed President Patrick Harker, a voting member of the Fed’s rate-setting committee, said on Friday that he sees rates going up to “somewhere above 5%” and holding there for some time before cutting the key interest rate.

Another factor that could boost the dollar-linked gold price is a decline in Treasury yields, which are seen to be down by around 50 basis points over the last seven months. Lower Treasury yields will help to reduce the cost of buying commodities priced in dollars, such as gold, and make them more attractive, according to Jeff Wright at Wolfpack Capital.

Ahead of this week’s US inflation report, the Federal Reserve has indicated that it expects to hike rates by a further 75 basis points in September. This is in line with the average forecast of traders, who have been pricing in a 78% chance that the Fed will continue its pace of jumbo rate hikes for the next few months.

Traders are also preparing for the release of the US Producer Price Index, which is expected to show a slowdown in overall producer price growth. This is expected to be in line with expectations, but a weaker price trend could encourage the Fed to pause the hawkish tightening that’s driven the stock market higher over the past few years.

Looking at the charts, we can see that gold has been in a bear flag since the end of January. The pattern has been formed after a steep drop in the price of gold, with a brief period of consolidation and retracement.

When this type of chart pattern forms, it can be a good opportunity to look for short selling. This can be done by putting a stop-loss below the level of the flag’s retracement, which should not be more than 50% of the initial decline. This is a key indicator that the flag pattern is still in place and can give you a clear signal as to when to exit your position.

The price is trading close to the $1785 level, which is just below the 50-day Simple Moving Average (SMA). A breakout above this level would likely encourage a move towards $1809 and possibly even $1840. If the price fails to break above this point, it may slip back towards $1785 and possibly $1752 as well.