Gold prices plunged as a market-wide recovery in risk appetite sent capital flows pouring out of the safety of Treasury bonds, pushing yields upward alongside shares. The chipper mood likewise echoed in Fed rate hike expectations, with the priced-in 2017 policy path steepening and sending the US Dollar upward. Not surprisingly, this undermined the appeal of non-interest-bearing and anti-fiat assets.
Looking ahead, UK CPI data is expected to see the headline on-year inflation rate rising to 2.8 percent in August, a hair below the four-year high of 2.9 percent set in May. While markets are not expecting the BOE to raise rates this year, prospects for tightening in 2018 have firmed recently. Firm price growth data that reinforces this dynamic may boost global tightening bets, hurting the yellow metal.
From there, US PPI enters the picture. Median forecasts see factory-gate price growth posting the first increase in four months to hit 2.5 percent, the highest since April. An outcome echoing broad improvement in US news-flow over the past three months may give Fed tightening prospects another upward nudge – a dire prospect for precious metals – although follow-through may wait for CPI data due Thursday.
Crude oil prices paused to consolidate losses after suffering the largest drop in three months on Friday. Separate monthly outlook reports from the EIA and OPEC are due in the hours ahead while API will release weekly inventory flow statistics. Taken together, these will inform prospects for working down a global supply glut, an effort led by the cartel’s production cut scheme and offset by US output.
GOLD TECHNICAL ANALYSIS – Gold prices proved unable to sustain the ascent to 13-month highs as suspected, turning sharply lower to post the largest drop since early July. From here, a daily close below the 1312.62-21.51 area (23.6% Fibonacci retracement, trend line) exposes the 1295.46-99.25 zone (38.2% level, double top). Alternatively, a reversal back above the 14.6% Fib at 1335.24 opens the door for a retest of the September 8 high at 1357.50.
