Gold Holds Gains, Hovers Around $1,980

Gold holds in fresh bull-cycle highs in the midday New York session. The Gold Price is being supported amid continued demand for inflation protection in wake of the latest CPI/PPI data. Geopolitical tensions also remain higher and the prospects of Russo-Ukraine peace remain poor, underpinning the Gold Index.

Gold price has held onto gains on Wednesday and hovers around the highs of the day so far. At $1,980, the gold price is 0.7% higher on the day having travelled from a low of $1,962.95 to the highest high since the week commencing March 14 at $1,981.56.

The price of gold has broken to the upside, out of sideways consolidation and has done so in the aftermath of another upside surprise in inflation data. While headline Consumer Price Index beat expectations, a more moderate increase in the core CPI has sparked talk of cycle peaks in inflation, which could see gold markets continue to perceive the US central bank as being behind the curve.

Furthermore, gold is benefiting from large-scale Chinese purchases, as our tracking of the aggregate net positions held by Shanghai’s largest traders long and short suggests that this cohort has increased their gold length to its highest levels in the past twelve months.

Investors seek protection against inflation, with the latest Producer Price Inflation (PPI) figures out earlier on Wednesday not providing any reason for optimism on this front.

The headline rate of YoY PPI came in above expectations at 11.2%, the highest on record (going back to 2011) and comes after the annual rate of headline CPI released on Tuesday rose to its highest in four decades at 8.5%. Geopolitics is another reason why investors are buying gold, with the most recent updates on the Russo-Ukraine war suggesting that peace remains some ways off.

Russia will view US and NATO vehicles transporting weapons on Ukrainian territory as legitimate military targets, Russia’s Deputy Foreign Minister said on Wednesday, comments that will escalate tensions with the West. The latest punchy Kremlin rhetoric comes after Putin said on Tuesday that peace talks with Ukraine had hit a dead end. Russia will view US and NATO vehicles transporting weapons on Ukrainian territory as legitimate target.

Instead, Putin promised that Russia would achieve all of its “noble” aims in Ukraine. “We have again returned to a dead-end situation for us,” Putin told a news briefing during a visit to the Vostochny Cosmodrome 3,450 miles (5,550 km) east of Moscow. “We don’t intend to be isolated,” Putin added. “It is impossible to severely isolate anyone in the modern world – especially such a vast country as Russia.”

Gold Price bulls will be eyeing a test of the $2000 areas in the near future. However, should a strong US dollar prevail amid further hawkish rhetoric from Fed speakers given their ongoing concerns about US inflation, the $1930s could come under pressure again as this correlates with a 61.8% golden ratio retracement. If that were to give out, the near-term prospects of a move higher will be severely diminished.