October 13, 2022 02:55 AM ET
By:AnalysisWatch
Gold is struggling to build on the previous day's recovery move from the $1,660 support zone and is facing a fresh bid on Thursday. XAU/USD has remained depressed throughout the early European session, currently trading near the daily low just below $1,670.
More hawkish signals from the Fed continue to support elevated US Treasury yields and continue to act as a headwind for non-yielding gold. Indeed, the minutes of the September 20–21 FOMC policy meeting, released Wednesday, showed that policymakers unanimously agreed to move monetary policy into tightening territory. Moreover, officials remain committed to keeping interest rates high for longer as the central bank strives to reduce inflation.
Therefore, the focus will be on the crucial U.S. CPI report, which will be released later during the early North American session. With the US producer price index rising more than expected in September, investors expect consumer inflation to remain persistently high and reinforce the Fed's rhetoric.
Nonetheless, key US inflation figures will influence the magnitude of the next US central bank rate hike and provide a further directional boost to gold.
On the other hand, the weakening US dollar could provide support for dollar-denominated gold in a relatively quiet trading environment. In addition, concerns about economic headwinds stemming from rapidly rising borrowing costs, geopolitical risks, and the resurgence of COVID-19 cases in China warrant caution from aggressive bearish traders. Therefore, it will be prudent to wait for strong follow-through selling below the $1,660 level before positioning for a significant drop.