Gold Edge Higher After CPI Data

The gold price is some 0.8% higher and correcting from daily support located in the lows of the day at $1,832.07. At $1,853.40, gold is close to the day’s highs of $1,858.30. The markets are still focusing on Wednesday’s US inflation data as the Consumer Price Index was released earlier in the North America session.

CPI climbed 8.3%, higher than the 8.1% estimate but below the 8.5% in the prior month. Also, the index rose just 0.3% last month, the smallest gain since last August, the Labor Department said on Wednesday, versus the 1.2% MoM surge in the CPI in March, the most significant advance since September 2005.

While the US inflation data reinforces a hawkish sentiment from the Federal Reserve and justifies front loading called for by the Fed’s chairman, Jerome Powell, markets were relieved that the data showed a decline in CPI on an annual basis.

The dollar index has sharply moved off its lows on the knee jerk as the data came in higher than expected, so it was unlikely to cause the Federal Reserve to adjust its aggressive path of monetary policy. DXY, which hit a four-session low of 103.37 ahead of the report, immediately strengthened to a session high of 104.13 in the wake of the data.

However, the rally came in short of the 20-year high of 104.19 reached on Monday and traders were quick to move in again and sell the US dollar to a fresh season-low of 103.372 before making its way back towards the session highs in a firm but slow bullish drift.

Markets have digested the data that shows that inflation has slowed, and underlying price pressures remain elevated which is weighing on investor sentiment and US stocks.

CPI data is driven by rents and services implies that price pressures are entrenched and may manifest in upward pressure on wages too. This likely means gold traders will expect the Fed to step up their hawkish signals.

The Dow Jones Industrial Average fell 0.8% giving up earlier gains. The S&P 500 slid 1.3% after increasing 0.5% earlier in the session. The Nasdaq Composite dropped 2.5% and is currently extending intraday declines while the 2-year yield increased to 2.857% and is aligned closely with Fed’s interest rate policy.

The positive surprise in core prices will not be favourable for currencies not named the US dollar. Market observers think the market is far too premature in reducing the Fed’s optionality set for tightening. This should leave the USD resilient for now.

Given that positioning is still tilted to the long end of exposure, continued higher-than-expected price prints could easily send gold below $1,830/oz in the near future. Higher nominal and real rates along with less liquidity due to QT are the likely financial market catalysts driving gold.

If gold prices dip below the $1,830s support levels, technicians could pull the yellow metal down toward the $1790s fairly quickly. Technically; gold prices had perked up on the news and were moving in on a the M-formation’s neckline.