The decline in US inflation rates, stronger than expected, negatively affected the path of expectations of raising US interest rates in the coming months. Yesterday’s numbers caused the US dollar to decline, and therefore the XAU/USD gold price had the strongest opportunity to rebound higher with gains to the resistance level of 1807 dollars per ounce, the highest for the price of gold in more than a month. The price of gold XAU/USD is stable around the level of 1786 dollars an ounce at the time of writing the analysis.

Stock Market Analysis

Stock markets extended their rally Thursday after weaker-than-expected US inflation data fueled speculation that the Federal Reserve may switch to a slower pace of interest rate hikes. Accordingly, the European Stoxx 600 Index advanced for a second day, after rising to a two-month high after the CPI report, with technology and construction stocks outperforming. US futures rose after the S&P 500 reached a three-month high and the Nasdaq 100 pulled back 20% above its June low.

Technology stocks fueled a 1% rally in the Asian stock index. China’s bourses advanced even as investors digested its central bank’s warning about inflation threats and vowed to avoid massive stimulus.

The price of the US dollar stabilized after the previous day’s decline, which was the largest since the beginning of the epidemic. Short-term Treasury yields were lowered as investors’ expectations of how aggressively the Federal Reserve would be able to tighten monetary policy. According to official figures, the headline inflation rate in the United States reached 8.5% in July, down from June’s reading of 9.1% which was the largest in four decades. Price pressures remain severe and Fed officials were quick to stress that more US interest rate hikes are on the way. They also indicated that investors should rethink expectations for cuts next year to support economic growth.

The question is whether the recovery in global stocks and other riskier investments from this year’s defeat can continue against this backdrop.

According to US Central Bank officials:

Minneapolis Fed President Neil Kashkari said he wants the Fed’s benchmark interest rate at 3.9% by the end of this year and 4.4% by the end of 2023. Referring to market pricing of the Fed’s policy trajectory, Kashkari said it’s not realistic to conclude The Federal Reserve will start cutting US interest rates early next year when inflation is very likely to exceed the 2% target.

For his part, Charles Evans, his counterpart in Chicago, said that inflation remains “unacceptably high” and that “we will increase rates the rest of this year and into next.”

Swaps pointing to the September Fed meeting brought the US interest rate back by half a point again in exchange for a larger move. A major part of the Treasury yield curve remains deeply inverted, a pattern widely believed to indicate the risk of a recession.

XAU/USD Gold Price Forecast Today:

• The stability of the gold price will remain above the psychological resistance of 1800 dollars an ounce, supporting the bulls’ control over the direction of gold.
• It will support the price movement towards stronger ascending levels, and the next. If this occurs, it will be the resistance levels of 1818 and 1832 dollars, respectively. 
• The movement of the XAU/USD gold price below the support level of 1770 dollars an ounce will have an important impetus for the bears’ move, and in general, I still prefer buying gold from every descending level.

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We are essentially watching a game of “chicken” being played out between Wall Street and the Federal Reserve.

• The NASDAQ 100 trying to break out Monday but seems to be struggling with the idea of breaking above the 13,000 level.
• It was a very choppy and noisy session, as we continue to try to figure out where we are going next.
• There is a big argument right now between the possibility that the Federal Reserve is going to pivot, and what seems to be reality from an inflation basis.

What’s Happening with Wall Street?

The Federal Reserve has had a couple of actors come out and suggest that perhaps they are going to continue to tighten, and that should be bad for the NASDAQ. However, Wall Street doesn’t believe this and that makes a certain amount of sense due to the fact that almost everybody on Wall Street has yet to trade an inflationary environment. Keep in mind that the average money manager wasn’t even around during the Great Financial Crisis. In other words, this is all new to them, and they’ve been raised to believe that the Federal Reserve will do whatever it takes to save them.

Whether or not that ends up being the case is a completely different question, but this is a major problem that the Federal Reserve itself has created. After all, you cannot continually bail out Wall Street and expect them to behave any differently. In that vein, it’s worth noting that the market is doing what it’s always done, trying to front-run what the Federal Reserve may do to save them. The real question is whether or not they know how to deal with the economy itself. The economy and the stock market have become so far from the reality of each other that if we actually traded based upon fundamentals, it’s kind of scary where we may end up.

That being said, this is the market that we are stuck with, so it’s all about monetary flow. It’s not about earnings, it’s not about the health of the economy, it’s about free and cheap money for Wall Street. If they have it, then it’s a party. However, if they do not have it, then we sell off. It’s been that simple for 13 years, and I don’t know that it changes anytime soon. We are essentially watching a game of “chicken” being played out between Wall Street and the Federal Reserve.

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