Weekly Market Analysis / 8 - 12 November 2021

Gold capitalizes on inflation fears, buyers look to retain control

After closing the previous week on a firm footing, gold continued to edge higher on Monday and Tuesday but lost its bullish momentum near $1,830. With data from the US showing that consumer inflation reached its highest level since 1990, gold regained traction and touched its highest level since June at $1,868 on Wednesday. Although gold retreated from that level, it managed to close in the positive territory on Wednesday and Thursday before going into a consolidation phase on Friday. For the week, the pair rose more than 2%.

  • Gold rose more than 2% and closed its second straight week higher.

  • Rising US T-bond yields and broad dollar strength could limit XAU/USD's upside.

  • Bullish outlook should stay intact if gold clears key resistance area.

What Happened Last Week

  1. The benchmark 10-year US Treasury bond yield broke below 1.5% on Monday and lost more than 3% on a daily basis, allowing gold to push higher at the start of the week. In the absence of high-tier macroeconomic data releases, varying commentary on the Federal Reserve’s policy outlook caused the dollar to lose some interest.

  2. On Tuesday, the data from the US showed that the Producer Price Index (PPI) stayed unchanged at 8.6% on a yearly basis in October. This reading came in below the market expectation of 8.7% but failed to trigger a noticeable market reaction and the modest dollar weakness allowed gold to remain in positive territory.

  3. Additionally, bullish momentum gathered strength with the failure of the key resistance area at $1,830 and gold advanced to a five-month top near $1,870.

News to Follow

  1. On Monday, Retail Sales and Industrial Production data from China are expected to show further loss of momentum in the world’s second-biggest economy. In case the market mood sours at the start of the week, gold is likely to continue to find demand.

  2. On Tuesday, the US Census Bureau will publish the October Retail Sales data. A weaker-than-expected print could revive concerns over inflation impacting consumer activity negatively and provide a boost to gold. 

  3. CPI data from the UK and the euro area on Wednesday and Thursday, respectively, will be looked upon for fresh impetus. Even though the data from Europe don’t usually have a noticeable effect on gold’s market valuation, they could highlight the policy divergence and weigh on gold by lifting the dollar against other major currencies.

In summary, market participants will remain focused on inflation and what it means for major central banks’ policy outlook in the near term. Comments from FOMC policymakers will be key in determining whether the Fed will prioritize controlling inflation over supporting the economy. 

Short-Term Outlook

  • On the upside, XAU/USD could target $1,869, $1,874 and $1,890$.

  • First support now aligns at $1,842, $1,821 and $1,801.