Gold succumbed to general market sentiment and jumped above $1,800 an ounce amid disappointing US inflation statistics. It has already tried to grow, looking at the weak employment figures outside the agricultural sector. Then the attacks of the bulls on XAU/USD ended in a fiasco. It seems that they once again took the same rake, believing that the slowdown in consumer prices and the labor market will force the Fed to postpone its plans to normalize monetary policy.
If the central bank made decisions on QE or the federal funds rate based on a single report, it would have to raise borrowing costs at almost every FOMC meeting. Such swinging from side to side would sow endless panic in the financial markets. Fortunately, the Federal Reserve is well aware of this. In order to reach a verdict on monetary incentives, several reports are needed. With an average employment growth of 500,000-600,000 per month and with the current high CPI level, it is advisable to start getting rid of monetary incentives. The US dollar felt this, so it is actively bought out on pullbacks. Gold seems to remain in the dark.
The precious metal is confused by the dynamics of the yield on US Treasury bonds. In response to the slowest growth in consumer prices of 0.3% MoM over the past 7 months, debt rates went down, which allowed the bulls on XAU/USD to launch a counterattack. The problem is that long-term ties must sooner or later be restored. If inflation remains at elevated levels in 2022, bond yields are bound to rise, which will be a major shock for gold.
Dynamics of inflation and US bond yields
The labor market can hardly be called weak. This is a market for a colossal number of vacancies, the closure of which will automatically lead the United States to a state of full employment and force the Fed to aggressively raise the federal funds rate. Yes, official consumer prices slowed in August, but the Cleveland Fed's cut-off average inflation indicator, which ignores sharp price jumps, accelerated from 3% to 3.2%. Between 2012 and 2019, it grew by an average of 2%.
Thus, the Fed is unlikely to turn away from the chosen path of normalizing monetary policy. Already at its September meeting, the Central Bank may announce the start of the process of curtailing QE from November or December. This factor is not yet fully incorporated into the quotes of the USD index, the growth of which is fraught with sales of the precious metal. On the contrary, if the Federal Reserve refrains from loud statements, gold will catch a tailwind. Until the important FOMC meeting on September 21-22, it risks developing the current consolidation or being sold off on rumors.
Technically, the inability of the bulls for the precious metal to consolidate above the fair value revealed using the market profile by $1,812 per ounce is a sign of their weakness and a reason for selling gold. At the same time, the drop in quotes below the supports at $1,782 and $1,776, where the border of the fair value and the important pivot point is located, will increase the risks of a downward trend recovery.
Gold, Daily chart
