I will analyze and possibly identify trading opportunities in Gold. In about 11 hours, the BLS will release the latest US inflation data:
- CPI is expected to drop from 0.3% previous to 0.1%. 0.1% is what the market is expecting. It should be considered that some economists are forecasting a 0.2% figure. No notable estimates lower than 0.1% to report.
- Core CPI is expected to tick up to 0.2% from 0.1% prior month. While some forecasts may deviate, the market is mostly aligned on the Core CPI forecast of 0.2%.
Some quick notes
- As of today, the market is pricing in a 62.7% chance of a July rate cut despite the Fed stating their commitment to a patient policy.
- Fed minutes continue to indicate no moves in either direction.
- The most recent FOMC meeting took place prior to the escalation of US-China trade disputes.
- Powell and rest of the Fed agree that lower price pressures as transient, while attributing lower inflation figures to idiosyncratic factors.
- Fed monitors core PCE price index, not CPI, but CPI tends to have a greater impact.
- Weaker than expected data could raise market expectations for the July rate cut, and could impact the expected timing of subsequent rate cuts.
- Stronger than expected data won't do much to dial back expectations of rate cuts.
- Impacts to inflation from China tariffs likely won't show up in this data.
- Gold will tend to move higher on lower than expected inflation, and drop when inflation comes in better than the market anticipates.
A lower than expected inflation reading could spur further pricing in of the July rate cut. It would probably have to be a big miss, 0.2% or more. In that case, gold could have some upside potential. Global uncertainty around trade, tariffs, and Brexit will continue to support the price of gold. Any drop in the price of gold on the data will likely be limited. As always, caution is advised especially when more than one data is being released. Don't get whipsawed.
Last few CPI releases
Last month might be a good indication that there may be some limited moves. Both the core and overall CPI figures came in lower than expected, and gold move much higher.
April's reaction in gold is a good example of how this data can whip you out of the market. CPI came in higher, while the the core figure printed a lower than expected number. This resulted in the dreaded whipsaw.
March data was relatively in line. Gold barely moved higher on a slight miss in the core number.
October of last year, inflation came in lower than expected and gold rallied. The potential for significant impact exists.
The past three CPI releases don't give much reason to think there could be any significant reaction to the data. However, there's always risk of big market moves on CPI data as seen in last October's release. The extent of the impact will depend on deviations from forecasts. Good Luck!