Gold Falls as Market Absorbs Recent Advance

Gold prices have been falling despite softer US inflation data that should normally support the metal. The price of gold slipped 0.5% to $4,326.75 an ounce by Friday morning, and December US futures fell almost 1% to $4,382.50. This comes after a week where gold hit its highest level since June 5 on Thursday before reversing sharply.

The inflation data showed that July consumer prices eased to 3.4% year-on-year from 3.5% in June, while producer prices were unchanged on the month and slowed to 4.7% annually from 5.5%. These numbers have cut the implied probability of a September Federal Reserve rate increase to about 35%, from roughly 55% a week earlier.

Tastylive macro strategist Ilya Spivak believes that much of the improvement in gold prices is already reflected, and the latest decline may be speculative investors locking in gains after a rapid rebound rather than a fundamental deterioration in gold's outlook. He notes that the market may need time to absorb its recent advance.

The key for gold now is reclaiming the $4,400-$4,425 resistance zone, which the market just failed to hold. A sustained break above this zone could confirm that the August advance is developing into a broader recovery rather than another temporary rebound.