The price of gold is taking advantage of the drop-in long-term rates, but especially the fall of the dollar, to regain height. Like the euro, the pound and other major currencies, the price of gold has rebounded since Wednesday following the release of the US inflation and the Fed’s Beige Book.

U.S. inflation came out broadly in line with expectations, but the Beige Book confirmed the signals from the ISM indexes published last week by indicating that some companies had seen a moderation in the rise in prices paid to their suppliers.

This easing of pressure on producer prices suggests that inflation may have peaked or may be close to peaking. Indeed, the U.S. Producer Price Index released on Thursday reinforced this hypothesis by coming out up by only 0.2% month-on-month in December, which is below the 0.4% increase expected by the consensus.

Trader sentiment on US inflation will remain the main catalyst for markets in the near term, as we await the FOMC meeting at the end of the month. Data suggesting that inflation is more persistent than expected would reinforce rate hike expectations, which should support the dollar, rates and therefore pressure gold and vice versa.

From a technical perspective, the outlook for gold prices could quickly turn bullish again over the medium term if the resistance at $1834, temporarily breached in November, is breached once again.

A breach of this resistance would pave the way for gold to accelerate upward to the November high of $1877, or possibly the June high of $1917.

In the long term, a much larger rise is unlikely as the Fed’s normalization of monetary policy is expected to eventually raise real rates to near 0%, which would put pressure on gold.

Analyzed by: Mr.Thibault Moirez, Independent Analyst