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Gold price forecast amid making the largest move in the last 24h

By:
on Dec 13, 2022
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  • Gold price surges as US inflation cools down in November
  • Underlying inflation is still running too high, as per the employment cost index
  • A break above $1,880 would trigger more upside

Gold price is on the move – unsurprisingly, given the fact that the November US inflation report was released today. However, it is worth paying attention to gold’s move because it is the largest in 24h among commodities.

Moreover, gold acted strangely during the high inflation period in the United States. More precisely, the yellow metal is known for acting as a hedge against inflation.

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But during times when inflation reached a four-decade high in the United States, the price of gold dropped. In other words, it failed to act as an inflation hedge.

So why this reaction? More importantly, why now?

Is there a risk of a false down in US inflation?

Today’s inflation report revealed that inflation in the US is cooling off, as reported here. In November, the annual inflation reached 7.1%.

Commodity prices have started to reverse (but not the price of gold). For instance, since June, the producer price index has dropped by 5%, while the energy component of the CPI has decreased by 10%.

The development may lead to inflation dropping even further in the coming months. However, underlying inflation is running way too high compared to the Fed’s target.

For instance, the increase in the employment cost index of about 5% annual rate suggests that inflation should be around 4% or so. Yet, way too high than the Fed’s target.

In other words, can the price of gold rise as inflation cools down but remains well above the Fed’s target in the long run? If that is the case, and the bullish trend in the price of gold continues, it may be that gold will act as a hedge against inflation in the long run.

Gold price surges, breaks the lower high of the previous bearish trend

Gold price made the largest move in the last 24h, with a 2 standard deviations move. On its way up, gold broke the previous lower high, belonging to the bearish trend that dominated the 2022 price action.

With no resistance in sight until $1,880, the price of gold might squeeze higher, especially if the dollar’s bearish trend continues. Moreover, gold price might accelerate even more if its volatility-adjusted return keeps outpacing other commodities.