Gold Shrugs Off Hot CPI While Scoring Third Weekly Loss

A hotter-than-expected August inflation report all but locked in a rate hike at next week's FOMC meeting, yet gold rallied anyway on Friday — a sign, technicians say, that the metal has already priced in higher rates and turned its attention to other drivers.

Gold gained $31.50, or 0.72%, on the day. That bounce wasn't enough to rescue the week, however: on a weekly basis, gold fell $87.20, or nearly 2%, to close at $4,390 — the metal's third consecutive weekly decline.

The losing streak has taken a real toll. From the week's open on August 24 through Friday's close, gold futures are down $284, or 6.08%. That gives back more than half of the ground gained during the three preceding weeks, when the metal rallied a combined 12.73%.

Friday's price action came despite, not because of, the day's headline economic release. The Bureau of Labor Statistics reported that the Consumer Price Index for All Urban Consumers rose 0.4% in August on a seasonally adjusted basis — up from a 0.1% increase in July — pushing the year-over-year rate to 3.4%. Core inflation, which excludes food and energy, climbed 0.3% for the month, slightly hotter than economists had expected, while a jump in gasoline and energy costs, aggravated by the ongoing conflict in the Middle East, accounted for a large share of the increase.

It was the last major inflation reading the Federal Reserve will see before it meets September 15-16 under Chair Kevin Warsh, who took the helm in May. The CME FedWatch tool now assigns an 87% probability to a quarter-point rate increase at that meeting — a notable shift given that Warsh had been widely expected, upon taking office, to push the Fed toward lower rates rather than higher ones.

Higher rates are typically bearish for gold, since they raise the opportunity cost of holding a non-yielding asset — so the metal's rally on a day when hike odds firmed further stands out. On a 30-minute chart of gold futures, the metal spiked roughly $48 in the half hour surrounding the CPI release alone.

That reaction suggests the market has already priced in next week's hike and has moved on to other factors. Central banks remain steady buyers of gold — China's has extended its accumulation streak past 20 consecutive months — while lingering unease over the dollar's standing as the world's reserve currency, the Middle East-driven surge in energy prices and broader geopolitical risk, and a recent pickup in ETF purchases following a stretch of net selling earlier this year are all providing support that has little to do with the rate path.

Technical Outlook

The technical picture for gold and silver remains slightly bullish, with both metals holding above their 50-day simple moving averages. What has changed is that the two have converged: gold now sits between its 50-day SMA, acting as support, and its 100-day SMA, acting as resistance.

The Ichimoku Cloud tells a more bullish story for gold than for silver. Gold has held above its cloud all week, closing Thursday's session just a few dollars clear of it. Silver, which finished Friday at $64.90, down 2.6% on the day, remains inside its own cloud and has closed there in every session since Monday, August 10 — the lone exception coming on September 9 — a choppier, less decisive picture than gold's.

Momentum readings are nearly identical for the two metals: silver's Relative Strength Index sits at 48 versus gold's 47, indicating neither asset is overbought nor oversold.

The FOMC's September 15-16 meeting will be one of four this year accompanied by an updated Summary of Economic Projections and "dot plot," giving investors their clearest look yet at how Warsh's Fed is balancing persistent inflation against a mandate — and a White House — pushing for lower rates. The rate decision is due Wednesday at 2:00 PM ET, followed by a press conference.

For gold, a hike that markets have already largely priced in could set up the classic "sell the rumor, buy the news" pattern that has followed anticipated Fed moves in the past. But a surprise in the size of the decision, or in Warsh's forward guidance, could just as easily extend the metal's three-week slide.

Whishing you as always, good trading.