The gold price has found support ahead of crucial US CPI on Thursday. The market anticipates that the data might show a little easing of the yearly number, but the monthly figure is anticipated to remain firm.
According to a Bloomberg survey of economists, headline month-on-month CPI for October is forecast to be 0.6% against 0.4% for September and 7.9% for the year-on-year figure against 8.2% previously.
Month-on-month ex-food and energy CPI is forecast to show a slight easing to 0.5% against 0.6% prior, with the annual read expected to be 6.5% versus 6.6% previously.
While the current inflation read will be in focus for traders, the market’s interpretation of the implications for breakeven inflation rates could be of more significance for the yellow metal.
The breakeven inflation rate is the market-priced forward-looking inflation rate that is derived from Treasury Inflation-Protected Securities (TIPS).
The real yield is the nominal yield less the breakeven inflation rate. This is the total return that can be expected from a bond accounting for the impact of price increases over the bond term.
As gold does not deliver a return, the real return of other so-called ‘safe haven’ assets is often seen as variable, contributing to the price fluctuations of gold.
It should be noted that holding physical gold has a cost of carrying. The cost of storage is the most significant component.
Looking at the 10-year Treasury note less the corresponding breakeven inflation rate, the US real yield remains near the 13-year high seen last Thursday.