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In perhaps the most important economic report of the week outside of tomorrow’s Fed interest rate decision, inflation appears to be cooling further. The latest reading of the Consumer Price Index showed inflation rising at a rate of 7.1% year-over-year. That figure was lower than the 7.3% rise forecast by many analysts and appears to have provided markets with a very large sense of relief. The question now may become whether the Fed sees the need to keep raising rates early next year or if it will decide to take a pause and let previous hikes work their way through the economy. While the report still shows massive inflation, the slightly cooler rate of price pressures may give the Fed much to consider in the weeks ahead as 2022 comes to a close.

Gold surged to a five-month high following the report, while stocks also surged sharply higher. After being up over 800 points this morning, the Dow Jones Industrial Average has given back the majority of those gains throughout the session. In mid-afternoon trade, the Dow is now only higher by 56 points or so and could even go negative before the end of the session. Gold has given some of its gains back as well, although the yellow metal is still sharply higher on the session by nearly $30 per ounce.

With spot gold now valued around $1810 per ounce, the bulls will need to show they can hold the $1800 level in the days ahead. Today’s upside puts the market on very solid technical footing. That footing may become very fragile, however, if the bulls are unable to hold $1800. A move back below this key technical barrier could give the bears some ammunition and could fuel a further leg lower in price. On the other hand, any moves back towards $1800 may now be aggressively bought as the bulls look to defend this area on the chart.

The yellow metal may remain somewhat quiet and subdued ahead of tomorrow afternoon’s FOMC decision. The Fed is expected to raise interest rates again. The question this time around is by how much. While another 75 point rate hike is possible, it has become increasingly unlikely. The Fed will almost certainly raise rates tomorrow by 50 basis points and step away from the bigger, more aggressive hiking seen in recent months. The Fed is likely to keep raising rates, however, and may now leave rates at higher levels for a longer period of time. Despite this notion, the market bulls like the idea of slower and smaller rate hikes and may keep pushing prices in gold and stocks higher until proven wrong.

The U.S. Dollar is sharply lower today after hitting a 5.5-month low following the CPI data. The dollar has been a major roadblock to higher gold in recent months, and if it reverses course it could also fuel buying in gold that could see it quickly approach all-time highs or beyond.