Gold Retreats On Stronger USD

Gold price is losing 1.60% on Thursday, falling from a high of $1,858.87 to a fresh cycle low of $1,822.27. The US dollar is bid and climbed to fresh two-decade highs on Thursday as investors flock to the safe-haven currency in the face of surging inflation.

Wednesday’s data bolstered market’s expectations for further aggressive hikes in interest rates by the Fed. The Consumer Price Index climbed 8.3%, higher than the 8.1% estimate but below the 8.5% in the prior month. The index rose just 0.3% last month, the smallest gain since last August, versus the 1.2% MoM surge in the CPI in March, the most significant advance since September 2005.

The CPI is driven by rents and services implies that price pressures are entrenched and may manifest in upward pressure on wages too. As a result, the dollar index surged 0.4% to 104.92 on Thursday following a nervous day on Wednesday.

The US Dollar is rallying as things potentially look negative in the US, which is hurting gold. Also, the market is realizing the likelihood of seeing pretty aggressive interest rate increases. However, precious metals are holding up relatively as a drop in the benchmark 10-year Treasury yields, which hit the lowest level in two weeks, has capped some of the bear’s progress. The ten-years are down over 3% while the more Fed tentative 2-years are losing 3.7%, weighed by Producer Prices that fell short of expectations.

The US Producer Price Index increased by 0.5% in April compared with a 1.6% jump in March. Excluding food and energy, the core PPI climbed by 0.4%, lagging the 0.7% gain expected. Core PPI grew by 1.2% in March. On a year-over-year basis, producer price inflation surged 11% in April, and core PPI jumped 8.8%, the Bureau of Labour Statistics said Thursday.

The dollar is gaining today despite falling yields, which illustrates the so-called dollar smile whereby it gains during periods of risk off as well as in periods of strong US data and rising yields. Either way, the dollar’s climb is likely to continue for the time being.

Technically; gold prices have fallen from a 4-hour resistance. A move below the lows of the day will open new territories for the bears and prospects of a test below the psychological $1,800.