Precious Metals: How to Trade the CPI Report

investing.com:

Thanks to the recent drop in bond yields and the dollar, both gold and silver are continuing to make back lost ground. The metals have been further supported by raised geopolitical risks, highlighted by gold’s breakaway gap at this week’s Asian open. The focus will remain on the dollar and yields with the release of key US inflation data today.

Until recently, the Fed was the standout central bank among the most hawkish camps, with many central banks elsewhere dropping their uber-hawkish rhetoric earlier. But we have now noticed a bit of a dovish tilt in the FOMC’s rhetoric in more recent days, suggesting that the hiking cycle is now complete.

The hawkish repricing of the Fed’s interest rates following the central bank’s last meeting in September, where it signaled just two rate cuts are on the way next year instead of the four it had pointed to previously, is also probably now complete. This is probably why the dollar failed to respond positively to the stronger-than-expected PPI data and the hawkish FOMC minutes on Wednesday.

The highlight in today’s economic data calendar is US inflation data, due for release at 13:30 BST. Headline CPI inflation is expected to cool to 3.6% y/y in September, down from 3.7% in August. Meanwhile, core inflation is expected to ease to 4.1% YoY from 4.3% previously.

Today’s release of CPI may provide a bigger test for the dollar bears, but if those PPI figures are anything to go by, then investors may not pay too much weight behind CPI figures if they turn out to be slightly stronger-than-expected CPI figures.

This is because investors seem to be backing the view that, while there will be bumps on the road, the disinflation process is well underway and that the Fed won’t have to tighten