Gold Prices Surge Following CPI Data

Gold surged after the release of US CPI data, which showed price rises slowing in May. This suggests that the Federal Reserve may cut interest rates sooner than expected, lowering the opportunity cost of holding Gold. Gold could experience more volatility after the Fed policy decision is announced on Wednesday. The data shows both headline and core inflation cooled in May, suggesting the Fed may cut interest rates earlier than previously thought.

Headline inflation in the US flatlined on a month-over-month basis and rose 3.3% year-over-year, lower than the predicted 0.1% and 3.4% rises by economists and the 0.3% and 3.4% of the previous month, respectively. Core CPI rose 0.2% MoM and 3.4% YoY, also below estimates of 0.3% and 3.5%, and the previous month’s 0.3% and 3.6% respectively.

The data increases the chances the Federal Reserve (Fed) may move as soon as September to reduce interest rates. The probability of a rate cut by September rose to almost 70% after the release from 53% before, according to the CME FedWatch tool.

Gold continues to pull back and retest resistance from the bottom of its previous range at $2,315. However, it is likely in a short-term downtrend, with the next downside target being around $2,285, the 100% extrapolation of the down-move prior to the trendline break in May. A stronger move down could see gold meet support at $2,279 (late April-early May swing low), while a decisive break above the resistance level at $2,315 could suggest the short-term downtrend is losing momentum and more upside might be on the horizon.