Are Gold prices going higher or lower from here? [Video]

Gold prices have made an explosive start to the month amid growing expectations that the Fed is edging closer to a potential “pivot” away from aggressive interest rate hikes.

One of the primary catalysts behind the explosive move higher, came after the hotly anticipated U.S Consumer Price Inflation reading rose less than expected in October – boosting expectations that supersize rate hikes are likely now in the rear view mirror.

Last week's cooler-than-expected Consumer Price Inflation data offered some relief to the Fed, potentially indicating that October could be the start of a disinflationary trend that lasts through next year.

Gold prices received a further boost this week after the Producer Price Index, a key measure of inflation at the wholesale level – rose 8% in October compared to an 8.4% increase in September.

While still historically high, it was the smallest increase since July of last year and significantly better than forecasts. This is the second back-to-back inflation report this month to show signs of cooling in the rising prices that have plagued the economy.

The producer index is generally considered a good leading indicator for inflation as it gauges pipeline prices that eventually work their way into the marketplace. PPI differs from the more widely followed consumer price index as the former measures the prices that producers receive at the wholesale level while CPI reflects what consumers actually pay.

For most of this year, the Federal Reserve has been aggressively raising interest rates in hopes of bringing down inflation. The central bank has increased its benchmark borrowing rate six times for a total of 3.75% – including four straight 75-basis point rate hikes.

Following this week’s data Traders have started pricing in a strong possibility that the Fed will only hike rates by half a percentage point in December. Wagers are also increasing that the Fed will downshift the pace of rate hikes even further to a quarter percentage point increases by the first-half of 2023.

That view seems to be shared by Federal Reserve Vice Chairman Lael Brainard who said this week that “if the economic data continues to show inflation is on the decline, then the central bank could scale back the extent of its future rate hikes”.

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