Commodities had one of their best quarters in recent history. Gold price surged to record highs, blasting through the $2,000 level, and triggering lots of stops above.
Suddenly, everybody has an interest in owning some gold so to protect the investment portfolio from inflation. And inflation, as we saw this week, started to show its ugly teeth.
Core CPI Through the Roof
Not only the MoM headline data came above expectations, but the Core data too. More precisely, core inflation in the United States tripled in the last month, fueling fears of higher levels to come.
If there is a rationale behind higher gold prices, than higher inflation, or rising inflation, is the one. However, there is one thing to consider before buying gold at current levels. That is the Fed.
The Fed in the United States has a dual mandate – job creation and price stability. Inflation refers to the second part of the Fed’s mandate.
While inflation is on the rise, as a result of the rising M2 money supply, it remains below the Fed’s target of 2%. In fact, 0.6% inflation, as we saw this week, is far below the Fed’s target, so investors may discount the inflation fears for now.
As such, the gold price still has room to correct, at last until we see inflation overshooting the Fed’s target.
Gold Price Technical Analysis
After shooting over the $2,000 level, the price of gold retraced quickly. The breakout came after a running triangle formation but still feels incomplete.
Two things call for lower gold prices in the short to medium term. One is the upper trendline of the triangle – it remains retested, despite the fact that the price is mandatory to do so. Another refers to the apex of the triangle, which is supposed to offer support on any dip.
So far, none of the two conditions are in place, so aggressive traders may sell gold for the $1836 apex level. However, that is a risky perspective as there is no proper place to place the stop loss. Therefore, it makes more sense to wait for the pullback into support and buy $1836 with one hundred dollars stop loss and targeting new highs.