Gold futures are trading higher on Friday, driven higher by a weaker U.S. Dollar. A week ago, the market hit its highest level in 6-months. Since then prices have become rangebound. From a technical perspective, the sideways trade is screaming for a volatility breakout, but traders need a catalyst. Continue to watch the U.S. Dollar for direction.
At 1006 GMT, February Comex gold is trading $1292.80, up $5.40 or +0.42%.
The primary support for gold at this time is the weaker dollar and the dovish Fed. Helping to put a lid on prices is increased demand for higher-yielding assets.
On Thursday, less than a week after turning dovish, U.S. Federal Reserve Chairman Jerome Powell shifted the conversation from monetary policy to concerns about the ballooning amount of United States debt.
“I’m very worried about it,” Powell said at The Economic Club of Washington, D.C. “From the Fed’s standpoint, we’re really looking at a business cycle length: that’s our frame of reference. The long-run fiscal, nonsustainability of the U.S. federal government isn’t really something that plays into the medium term that is relevant for our policy decisions.”
However, “it’s long-run issue that we definitely need to face, and ultimately, will have no choice but to face,” he added.
Today’s key reports are Consumer Price Index, Core Consumer Price Index and Federal Budget Balance.
Traders will be primarily focused on the CPI report today. In the Fed minutes released earlier this week, policymakers cited muted inflation as one reason to consider backing away from further rate hikes. If the consumer inflation data confirms low inflation then Treasury yields may drop, driving down demand for the U.S. Dollar. A lower dollar typically means increased demand for dollar-denominated gold.
December CPI is expected to come in at -0.1%. December Core CPI is expected to have risen 0.2%. These number are not likely to be strong enough to convince the Fed to keep tightening. Weaker-than-expected data could drive the U.S. Dollar sharply lower, which would drive gold prices higher. A steep plunge in the dollar could trigger a breakout by gold through last week’s high at $1300.40.