Is Gold's Shine Dimming Under the Weight of Inflationary Pressure?

 Inflation seems to be a persistent issue, as indicated by the recent US Consumer Price Index (CPI) and Producer Price Index (PPI) reports. Both these reports showed higher-than-expected numbers, suggesting that the increase in wholesale prices is making its way to consumers. The primary culprit for this dramatic rise is the surge in energy costs, notably driven by OPEC+ supply restrictions.

What's interesting is that both Crude Oil prices and US Treasury yields are currently on the rise simultaneously, an unusual trend. This situation has pushed Gold to a 10-month low, although it did show some resilience by bouncing back from the $1900 level, which has historically provided support. However, if Gold closes below $1900, it could potentially drop further to its previous support level at $1875.

Following the recent PPI data, there's growing speculation that the Federal Reserve might pause its rate hikes during the upcoming September FOMC meeting. According to the CME's FedWatch tool, there's now a 97% probability of the Fed continuing its rate hike pause, which started in July. The probability of another pause in November has also increased to 66.6%, indicating that the market doesn't expect any imminent rate hikes. Additionally, the European Central Bank (ECB) recently raised its rates while expressing dovish sentiments, suggesting they may be done with rate hikes, which is viewed positively for Gold.

In the MCX (Multi Commodity Exchange), Gold has formed a double bottom pattern around the 58,300 level. Any further weakness is anticipated only if it falls below this level. On the upside, immediate resistance is expected at 59,000, followed by 59,500. The momentum oscillator is showing signs of turning positive, but confirmation is needed as the RSI_14 stands at 43, with confirmation expected above 50. Gold prices are currently trading below the 20 and 50-day moving averages, indicating a weak trend. However, Gold has demonstrated resilience against strong US economic data and a rallying US dollar.

Investors have been quick to buy Gold around the $1900 mark, as it's currently hovering around its support zone. We recommend taking a long position with an expected target of 59,200 and a stop loss at 58,300. In the MCX, a double bottom pattern has formed, and any breach below that could potentially open doors to the 57,500 level. Therefore, it's essential to maintain a strict stop loss at 58,300 on a closing basis for any long positions.