Gold Rally Faces Reversal Test Ahead of US Inflation Release

Gold's recent surge may be running out of steam ahead of today's US inflation release. The precious metal has had an extraordinary run, one that is close to unprecedented based on moves in traditional macro drivers such as the US dollar and US Treasury yields over a short period.

A look back at inflation days over the past decade reveals that these releases generally don't provide a huge directional edge for gold traders. However, they do tend to generate slightly larger trading ranges and a modest skew towards positive closes compared with non-inflation days.

While there's no significant divergence in performance, around one in five inflation reports has coincided with an intraday range of at least 2% over the past decade. Before the pandemic, inflation days produced a stronger skew towards positive closes and larger average gains, but since then, the directional edge has weakened, and volatility has increased.

The price of gold continues to find support around $4,367, which has acted as both support and resistance earlier this year. A bearish reversal signal is possible if the price fails to hold above this level, potentially leading to a short sale with a tight stop above for protection. However, RSI (14) and MACD continue to point to the bulls having the ascendancy.