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Oct-22-2016 16:57printcomments

Gold Edges Higher Following Softer than Expected U.S. Core CPI

Support on gold prices is seen near the October lows at 1,240.

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Image Courtesy: lifecareinsure.com

(SALEM, Ore.) - Gold trading has been subdued as prices attempt to find a foot hold, as weaker than expected core U.S. inflation figures, helped buoy prices.

While inflation picked up in the UK with a better than expected headline figure, sentiment in the U.S. is allowing the dollar to ease and therefore helping gold prices gain ground. Recall, gold trades as a current against the U.S. dollar, and the recent pickup in U.S. yields has put pressure on gold prices as the greenback rallied.

The 0.3% September CPI rise with a 0.1% core price increase undershot estimates, and the headline rounded up from a 0.292% increase alongside a particularly lean 0.112% core price rise.

The downside surprise mostly reflected a 0.7% apparel price drop and a flat medical care service price reading after a 1.0% (was 0.9%) August surge, though we also saw a sturdy 0.4% rise for owners' equivalent rent after five consecutive 0.3% gains, alongside the expected 2.9% energy price rise.

We expect a 0.4% CPI gain in October with a 0.2% core price rise thanks to an estimated 7% gasoline price surge.

The headline y/y increase should rise to 1.7% in October from 1.5% in September, while the "core" y/y rise remains at September's 2.2%, following the 2.3% cycle-high in August. We expect a 0.3% headline PCE chain price gain with a 0.1% core price rise that matches today's CPI data.

U.S. NAHB homebuilder sentiment index dipped 2 points to 63 in October, as expected, after surging 6 points to 65 in September. The latter was the strongest reading since October 2015 and for this business cycle.

The present single family index fell 2 points too, to 69 following the 6-point jump to 71 previously. The future index rose 1 point to 72 after the 5 point September rise to 71. The index of prospect buyer traffic slipped 1 point to 46 from 47 which was revised down from 48.

U.S. yields stalled out again under highs after the NAHB pullback in October, after reversing higher on spillover selling from the $10-15 billion Saudi deal, stock gains, and firmer headline CPI. This allowed the dollar to ease and gold prices to gain a foothold.

The Saudi deal launched, but could be followed with some hedge lock unwinding. The 2-year yield topped 0.83% before stalling; the 5-year yield cleared 1.26% before topping; the 10-year eased to 1.78% after reversing higher to 1.79%; and the 30-year yield stalled out over 2.55% before easing to 2.54%.

From a technical standpoint gold prices have been oversold and the RSI (relative strength index) has moved from levels below the oversold trigger level of 30 to 32, which is at the bottom of the neutral range. This is generally considered a bullish signal.

Support on gold prices is seen near the October lows at 1,240. The 10-year yield on the U.S. treasury remains above support near the 200-day moving average at 1.74%, and gold will likely remain capped unless yields are able to retrace back to levels below 1.74%.

Source: Salem-News.com Special Features Dept.

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