Gold price analysis ahead of US inflation data and Fed decision

Gold price has pulled back in the past few days, moving from the year-to-date high of $4,370 on October 17 to the current $4,072. It has dropped by 6.85% from as investors book profits. So, what next for gold ahead of key events?

Gold falls ahead of the US inflation data

Gold has dropped sharply as the recent bull run took a breather after soaring by almost 70% from its January lows. This pullback happened as investors took a breather and as some of the recent tensions faded. 

One of the main risks that has faded is on trade between the US and China. The White House confirmed that Donald Trump and Xi Jinping will meet at the APEC meeting in South Korea next week. 

A successful meeting will be a good thing for the market as it will eliminate one of the main headwinds facing the US economy. However, such a deal would be, to some extent, bearish for gold. 

The next key catalyst for the gold price will be the upcoming US inflation data. Economists polled by Reuters expect the numbers to show that the headline Consumer Price Index (CPI) rose to 3.1% in September, the highest level since June last year.

Core inflation, which excludes the volatile food and energy, is expected to move up slightly to 3.2%. Gold price will likely drop further if the inflation report is higher than expected. 

Such a move will mean that the Federal Reserve may not cut interest rates as aggressively as expected. 

Federal Reserve interest rates

The other major catalysts for gold will be next week’s Federal Reserve decision. Economists expect the bank to cut rates because of the labor market, which has continued to deteriorate in the past few months.

The last official jobs report by the Bureau of Labor Statistics (BLS) showed that the economy created just 22,000 jobs in August. Another more recent report revealed that the private sector shed 36,000 jobs in September. 

The other key catalyst for the gold price is the ongoing surge in US public debt. Data shows that the debt crossed the $38 trillion mark this week. This surging debt, together with US policies, explains why foreign central banks have continued to boost their gold reserves.

Analysts are still bullish on gold this year. Goldman Sachs analysts boosted their forecast to $4,500, while those at Bank of America and JPMorgan boosted their target to $4,800 and $4,200.

Gold price technical analysis 

The daily chart shows that gold price has pulled back in the past few days. It dropped from a high of $4,370 to the current $4,070. 

Gold has remained above all moving averages. While this is a bullish aspect, there is a risk that it may drop because of mean reversion. If this happens, it will likely drop to the 50-day moving average at $3,830 and then bounce back. In the long term, gold will bounce back and rebound to $4,500.