What does the US inflation tells us about gold price?
Gold prices have been trading below the critical level of $2,000 for some time, and traders are wondering if the price is going to move higher and, more importantly, what will be the factor that will move the price higher.Gold prices are highly sensitive to a number of factors, which traders should pay close attention to.
A factor that has a highly strong correlation with the gold price is the movement in the dollar index. Most of the time, the relationship between the gold price and the dollar index is negative, meaning that when the gold price moves higher, the dollar index moves lower, and vice versa. The dollar index is highly sensitive to the Fed’s monetary policy.
Currently, the Fed has a hawkish monetary policy, which means it has been increasing interest rates at a record pace over the past few quarters to tame inflation. . The gold price chart here shows the price moving away from its all-time high. But now, the inflation data has started to ease off which means something is about to happen with the gold price.
Basically, both of these numbers show that the Fed should take it easy in terms of their interest rate hike cycle and take the summer off.With the fact that the inflation data has eased off, I think it is likely that we are going to see weakness heading for the dollar index. This means that the gold price is likely to see a serious upside.
With these factors in play, the gold price will not only be able to easily clear the resistance level of 2020 , but there will be a greater chance of the price crossing above the all-time high.Traders should also keep in mind one important factor: with the Fed taking a back seat on the monetary policy side, there are stronger chances the equity markets will pick up more steam, and riskier assets will come in more demand, which may take some shine away from the gold price.
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