Gold dropped to $4080 due to the hot inflation of September; Why do buyers come back again?

Source link: Gold dropped to $4080 due to the hot inflation of September; Why do buyers come back again? At a glance, US September inflation data came out higher than expected and pushed gold down to a weekly low of nearly $4080 per ounce. The US producer price index grew by 1.3% in September compared to the previous month; 80 basis points higher than the market forecast. Gold to about 4175 dollars by Friday morning […] Source site: Safir Arjan

US September inflation data came out higher than expected, pushing gold down to a weekly low of nearly $4,480 per ounce.

The US producer price index grew by 1.3% in September compared to the previous month; 80 basis points higher than the market forecast.

Gold returned to around $4175 by Friday morning; At the same time, US stocks experienced massive selling and the dollar index weakened.

The week after this report has a quiet economic calendar, and a week later, the Federal Reserve's Open Market Committee will decide on interest rates.

September US inflation data came out higher than expected, pushing gold down to a weekly low of nearly $4,480 per ounce in the first reaction. But the buyers soon returned and according to the weekly report of Yahoo Finance, the price reached about $4,175 by Friday morning. For the first time in a long time, gold has reasserted its historic role: a safe haven against high inflation, the report says. Of course, gold ended the week slightly lower than its opening level.

The answer to the question of why buyers returned is in the market's priorities. According to the behavior of the market in the last 12 months, such news should have pushed gold down. The reason is that gold is a non-yielding asset and the central bank's traditional response to high inflation is to raise interest rates again. But as the market digested the data more fully, the tangible risk of high inflation became the main concern for investors, overriding expectations of higher interest rates in the medium term. For this reason, traders and capital managers went to gold again on Thursday and Friday.

Market forecasts did not expect inflation to decrease, but the published numbers exceeded those forecasts. Core inflation (consumer price index excluding volatile items such as food and energy) was 0.1 percentage points higher than expected in an annual comparison. Overall inflation was also higher than expected, and the main factor was the 9.1% jump in gasoline prices in September.

More worrying was the producer price index (PPI, a measure of prices received by domestic producers). This index grew by 1.3% in September compared to the previous month; That is, 80 basis points (every 100 basis points is equal to 1 percent) higher than the market forecast. Yahoo Finance sees this number as more worrisome for the future path of consumer inflation. In an immediate reaction to consumer inflation data, gold lost nearly $100 an ounce. After a small rebound, the weak PPI data appeared to fuel investor fears and helped gold bounce back to Tuesday's level.

Yahoo Finance points to the behavior of other markets in order to rule out this return as a coincidence or the result of a portfolio shift over the weekend. After the PPI release, US stocks went into a massive sell-off and this trend continued into Friday morning. The reason for this sell-off was a combination of concerns about prolonged high inflation and the resulting higher cost of borrowing. At the same time, the US dollar index weakened. If only the expectation of higher interest rates mattered, the dollar should have strengthened, the report argues.

Now the path of gold is tied to the next two weeks. After this report, we have a week with relatively little economic data, and the following week, the Federal Open Market Committee (FOMC, the interest rate decision-making body) meets. The main question is whether the atmosphere of risk aversion (the flight of investors from risky assets) will continue in several markets. Gold may again trade higher on interest rate expectations if an event marginally improves market conditions.

US September inflation data came in higher than expected and pushed gold down to around $4,080. Then, concern about inflation itself, selling in stocks and the weakening of the dollar caused gold to return to around 4175 dollars. The continuation of this path depends on the durability of the risk aversion atmosphere until the Federal Reserve meeting.

This report was prepared based on the analysis of the Yahoo Finance website and the team of Sefir Arjan rewrote it for the Persian speaking audience.