Oil surge trips gold again as markets turn to US CPI; key levels in focus

Another climb in oil prices has dealt gold a fresh blow; WTI touched a new weekly high yesterday.

The Houthis have stepped up their attacks on Saudi Arabia, reviving concerns about supply disruptions. Talks between the US and Iran remain deadlocked, and there is still no energy ceasefire between Russia and Ukraine; Russia reportedly struck an oil facility in western Ukraine.

Because the Middle East crisis is ongoing and the Russian front has offered no relief, oil prices have found ongoing support, which has in turn kept a lid on gold gains as inflation pressures stay entrenched and hawkish expectations linger.

All eyes are on today's US CPI report. Attention is expected to centre on the core month-over-month print, with Fed officials treating that monthly pace as the guide for how many rate hikes are needed and how quickly policy should tighten.

The market now assigns roughly a 21% probability to a rate hike in October, as traders have held off on fully dismissing the possibility of a move at the next meeting until the CPI release, despite pushback from Fed members.

My sense is that a 0.3% reading may not be enough for participants to fully price an October hike, while 0.4% probably would. That outcome would probably see gold sold off as a hawkish repricing takes hold. A print that matches or undershoots forecasts, on the other hand, could give the precious metal a short-lived relief rally.

GOLD TECHNICAL ANALYSIS – DAILY TIMEFRAME

On the daily timeframe, the gold (CFD contract) could not make it to the descending trendline, turning lower beforehand under pressure from the latest oil spike. Sellers are likely to keep leaning on that line, with a defined risk above it, while aiming for a drop to 3,885. For buyers, a break higher would be the trigger to enter and target 4,700, with 4,500 as the first target.

GOLD TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME

On the four-hour timeframe, the drop back below the ascending trendline quickly accelerated bearish momentum, with sellers piling in to force new lows. Support could still come in at 4,110. A move to that level could draw buyers, who would set a defined risk below it and position for a rally into 4,228 resistance. Sellers, meanwhile, will be looking for a breakdown to build bearish positions with a target of 3,885.

GOLD TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME

The one-hour timeframe features a minor descending trendline that could provide resistance in the event of a pullback. Sellers are likely to lean on that trendline, using a defined risk above it, as they keep pressing toward fresh lows. Buyers, however, will be watching for a break to take the pullback up to 4,228 resistance.

From a risk-management standpoint, though, the prudent course is to wait for the CPI report, since a surprise can trigger large moves and render technical levels useless.

UPCOMING CATALYSTS

Today's data release is the US CPI report. Tomorrow brings US PPI, US retail sales and the latest jobless claims numbers.