Best Day for Gold in 2022 Caused by Less Hawkish Fed Expectations

The US Dollar has officially declined to its lowest in almost 3 months as the US Dollar Index declined below 107.75. The US Dollar Index lost exactly 300 points within 3 trading sessions after the US Bureau of Labor Statistics confirmed a lower than expected inflation reading. The Core CPI figure declined from 0.6% to 0.3% and the CPI figure remained at 0.4% instead of rising, which had been predicted.

The above figure has resulted in the US Dollar significantly weakening against all its main competitors, but also a strong spike in the price of US equities and commodities such as Gold. The volatility so far has not given any sign of the price movement being temporary, but a complete change in price sentiment. Large institutional investors and individuals in general altered their positions, believing that the Federal Reserve will not hike another 75-basis-points. 

The stock market, which has generally been under significant pressure this year from rising interest rates also saw strong volatility. This was caused by 2 major elements. The first was that general company earnings showed that some sectors continue to see strong consumer demand, regardless of inflation and higher interest rates. 

The second is of course based on the lower inflation potentially leading to a smaller rate hike. Though, traders should keep in mind that economists and FOMC members do not believe the Central Bank will “pivot” completely. The largest increase amongst indices was the NASDAQ which increased by over 7.5%, as did all major indices saw positive movement including within Europe. Both the CAC and DAX have increased to a 5-month-high. 

NASDAQ 1-Hour Chart on November 11th

XAU/USD

The price of XAU/USD as expected has increased in value due to the strong decline in the US Dollar. It is also important for traders to note that both the Dollar and Gold are safe haven assets. This means they compete with each other for investments, and Gold may benefit as the Dollar becomes less attractive.

When looking at technical indicators, most signals are in favor of a longer term upward trend. Moving averages on most timeframes have crossed over upward. However, the price on the daily timeframe has reached the 200-day Exponential Moving Average. This has previously acted as a resistance point in August and June 2022. Therefore, market bulls will be looking for the price to establish itself above this point in order to maintain bullish price movement. 

XAU/USD 30-Min Chart on November 11th

As mentioned above, the change in sentiment within the market has been triggered by the US inflation rate unexpectedly declining to 7.7%. The inflation rate was originally expected to decline from 8.2% to 7.9 – 8.0%. Investors are hoping this will result in a slightly more dovish Federal Reserve. However, investors should note this may not result in a “pivot” as inflation still remains much higher than the bank’s target and that we still have a further CPI release before the rate decision. 

The news on inflation is not the only positive news for Gold this week. This week, there was a clear decrease in the yield of US government bonds, which is also positive for Gold. The 10-year Bond fell to 4.159%. The US Commodity Futures Trading Commission, also confirmed that the amount of speculated contracts for “long” positions have increased both before and after the inflation reading. The report also confirmed that “short” positions have also steadily declined for almost 1 month now. 

Summary:

• The US Dollar Index declines to a 3-month low to below 107.75.
• US Inflation declines more than expected to 7.7% YoY
• Global stock markets experience its strongest increase since March 2022, as markets hope inflation has peaked and monetary policy will soften. 
• Gold supported by weaker Dollar and lower Bond Yields.