- Gold jumps 0.97% after US producer price data shows higher-than-expected inflation.
- Despite a spike, Treasury yields reversed to 4.445%, weakening Greenback and boosting Gold.
- Powell’s waning confidence in disinflation and optimistic GDP outlook of 2% or more fuel Gold’s rise.
Gold prices surged past $2,359 on Tuesday following the release of US Department of Labor data indicating higher-than-expected inflation at the factory level. This signal of elevated prices, combined with a decline in US Treasury yields, created a tailwind for Gold.
Federal Reserve (Fed) Chair Jerome Powell’s assessment of the Producer Price Index (PPI) hinted at lower inflation but with less certainty than previously anticipated. Powell’s outlook on economic growth, forecasting a GDP increase of 2% or more fueled the upward trend in Gold prices.
Daily digest market movers: Gold bright amid falling US yields, soft US Dollar
- Gold prices reacted to lower US Treasury yields and a weakened US Dollar. The US 10-year Treasury note yield dropped to 4.451%, down approximately 4 basis points (bps) from the opening level. The US Dollar Index (DXY) decreased by 0.20% to 105.00.
- The Producer Price Index (PPI) data showed a 0.5% month-over-month increase, surpassing the expected 0.3% rise. Core PPI, excluding food and energy prices, also rose by 0.5%, exceeding the projected 0.2% increase. The substantial rise in both general and underlying inflation compared to March’s decline indicated a notable increase in producer prices.
- Forecasts for April’s Consumer Price Index (CPI) suggest no change from March’s 0.4% month-over-month reading, while the core CPI is expected to resume its downward trend from 0.4% to 0.3%.
- Upcoming data releases include Retail Sales on May 15, Initial Jobless Claims, and Industrial Production on May 16.
- The New York Federal Reserve’s Survey of Consumer Expectations revealed an increase in 2022 inflation expectations to 3.3% from 3% in March, reflecting rising concerns. This followed the University of Michigan Consumer Sentiment poll, which showed an uptick in one-year inflation expectations from 3.2% to 3.5%.
- Market expectations for interest rate cuts by year-end remain at 35 basis points (bps) based on data from the Chicago Board of Trade (CBOT).
Technical analysis: Gold price surge above $2,350 with bulls eyeing $2,400
Gold’s upward momentum continued, reaching above $2,350 after a previous dip. While below the recent cycle high of $2,378, the XAU/USD remains in a range-bound trend. The Relative Strength Index (RSI) indicates bullish momentum.
The first resistance for XAU/USD is at the May 10 high of $2,378. If surpassed, the next hurdles include the psychological $2,400 mark, the April 19 high at $2,417, and the all-time high at $2,431.
If prices decline below $2,359, potential support levels include the May 9 low of $2,306, the $2,300 mark, and the 50-day Simple Moving Average (SMA) at $2,249.
Gold FAQs
Gold has historical significance as a store of value and medium of exchange, serving as a safe-haven asset during uncertain times and a hedge against inflation and currency depreciation.
Central banks hold significant amounts of Gold to strengthen their currencies and signal economic stability. Emerging economies are increasing their Gold reserves for credibility and security.
Gold often has an inverse correlation with the US Dollar and Treasury yields, making it an attractive option during Dollar depreciation and market volatility.
Various factors influence Gold prices, including geopolitical events, economic outlooks, and currency movements. Gold’s price dynamics are closely tied to the performance of the US Dollar.
Additional Insight:
In times of economic uncertainty and inflation concerns, Gold tends to act as a safe-haven asset, attracting investors looking to preserve capital. The recent surge in Gold prices following higher-than-expected inflation data highlights the metal’s traditional role as a store of value. Additionally, the inverse relationship between Gold and the US Dollar underscores the importance of monitoring currency movements in understanding Gold price fluctuations.
