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The vast majority of retail client accounts lose money when trading CFDs.
Important Notice - Fraud awareness
Important Notice - Scam alert
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail client accounts lose money when trading CFDs. You should consider whether you can afford to take the high risk of losing your money.
Important Notice - Fraud awareness
Important Notice - Scam alert
The vast majority of retail investor accounts lose money when trading CFDs / Spread betting with this provider.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail investor accounts lose money when trading CFDs / Spread betting with this provider. You should consider whether you understand how CFDs / Spread betting work and whether you can afford to take the high risk of losing your money.
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Potential Gains in Gold as US CPI Exceeds Market Expectation

With the announcement of the annual CPI rate without seasonal adjustment in the United States in August, the trend in gold prices has made headlines again. The data shows that inflation in the United States in August rose 8.3% year-on-year, much higher than the market’s expectation of 8.1%. In particular, the core CPI in August surged 6.3% year-on-year, which is also high compared with the market’s consensus estimate of 6.1%. The data shows that the annual CPI rate is still high, and housing and food prices are still rising.

The Fed may maintain its hawkish stance in the future, which is a negative signal for gold investors. The inflation data caused the price of gold, initially hovering around $1,720, to fall sharply. It has now fallen below the $1,700 level, and the bears have won handsomely.gold price chart-Sep-18-2022-10-03-57-15-AM

From a macro perspective, the positive factors for the gold market outlook have gradually increased over time, mainly the speculation about the peak of US inflation, which made some gold bulls optimistic. This week, investors' main focus was on the annual US CPI rate in August without seasonal adjustments, the annual US core CPI data excluding seasonal adjustments in August and the US retail sales data for August released on Thursday.

However, the actual results of the US CPI data in August have made investors intensify their bets on the Fed, raising interest rates sharply. Inflation data did not drop as much as the market expected, which is a big negative for gold prices. This also means that the Fed's follow-up hawkish view regarding raising interest rates may persist for some time.

It should be noted that the Fed's hawkish stance can be felt quite strongly in the Fed chair’s latest speech. Powell said, "In order to curb inflation, the Fed may have to maintain the federal funds rate at a high level for a period of time, during which households and businesses will feel some pain." To some extent, the comments dispelled the market's earlier speculation that Fed's policy may change soon.

Furthermore, retail sales data partially reflects the economic situation after the latest US Fed interest rate hikes. Therefore, if the retail sales data does not hit or exceed the market’s expectations, gold may have an opportunity to rally higher, and weak consumer demand will also put pressure on the US dollar. Currently, the monthly retail sales growth rate in the United States in August is expected to be 0.2%, an improvement from the previous value of 0%. As a result, the market is expected to rebound slightly, but there will not be too many positive factors for gold. Therefore, investors have to wait and see if there is a chance for gold prices to pick up or whether they need to wait for the final data. 

Last Thursday, the European Central Bank raised interest rates by an unprecedented 75 basis points. If the Federal Reserve raises interest rates by 75 basis points later this month, the cost of holding gold will continue to rise as the attractiveness of the yellow metal diminishes. Therefore, the risk of gold continuing to decline can't be eliminated. Therefore, the market needs to be especially vigilant about whether the US CPI data may rise again after winter and whether the US economy will slow down or decline after the next interest rate hike. Therefore, it is necessary to pay attention to the relevant economic data forecasts. These could be potential unfavourable factors for the future trend of gold prices.

The gold market has accepted that the Federal Reserve may raise interest rates aggressively this month, and the price of gold is expected to remain under pressure before the announcement of the interest rate decision. However, the speculation on the direction of the follow-up policy is still inconclusive. Therefore, it is still necessary to pay close attention to the trend in energy prices because it primarily determines the direction of inflation.

Suppose consecutive months of data consolidate the view that inflation has begun to decline gradually. The US dollar index, approaching a 20-year high, could quickly peak and fall, boosting gold prices since a strong dollar is usually bad for gold prices.

Last Updated: 14/09/2022

This market commentary and analysis has been prepared for ATFX by a third party for general information purposes only. Any view expressed does not constitute a personal recommendation or solicitation to buy or sell as it does not take into account your personal circumstances or objectives, and should therefore not be interpreted as financial, investment or other advice, or relied upon as such. You should therefore seek independent advice before making any investment decisions. This information has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. We aim to establish and maintain and operate effective organisational and administrative arrangements with a view to taking all reasonable steps to prevent conflicts of interest from constituting or giving rise to a material risk of damage to the interests of our clients. The market data is derived from independent sources believed to be reliable, however we make no representation or warranty of its accuracy or completeness, and accept no responsibility for any consequence of its use by recipients. Reproduction of this information, in whole or in part, is not permitted.


 

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