Gold Upbeat Ahead of Another Inflation Update from the US

Inflation in Focus

Market participants brace for another inflation update from the United States, in the form of the April Consumer Price Index (CPI), which is due at 12:30 GMT. The last data had shown that headline CPI had soared 8.5% in March year-over-year and Core CPI had ticked up to 6.5% - the fastest since 1981 and 1982 respectively.

Based on the economic calendar, today's figures are projected to show a moderation, while the most recent data from the Fed's preferred gauge of inflation, the Core PCE, had revealed a de-escalation to +5.2% year-over year in March, from 5.3% prior (revised).

US President Biden who has been facing political heat due to the surging prices, said yesterday that inflation is his "top domestic priority". He attributed the problem to the "once-in-a-century pandemic" and "Mr. Putin's war in Ukraine", noting that there are things that cone be done to bring prices down and that this effort "starts with the Federal Reserve, which plays a primary role in fighting inflation in our country".

US Fed Policy

The US Federal Reserve delivered its biggest rate hike since 2000 last week in order to bring down inflation, reiterating its commitment to this task. Mr Powell started his press conference by addressing the American people directly and saying that "Inflation is much too high". ^[2]

Despite the strong wording around inflation, the central bank was conservative around future interest rates adjustments, with Chair Powell essentially taking off the table more aggressive 75 basis point hikes, saying that this is "not something the Committee is actively considering".

With today's data projected to show a moderation, the labor market tight and the US Economy having contracted in the first quarter based on preliminary data, perhaps the Fed is viewing its tightening path with some caution.

XAU/USD Analysis

The greenback has been advancing due to the Fed's aggressive monetary tightening, but if the Fed was to become more conservative, whereas more and more central banks catch up, extending the rally may become more difficult down the road.

The US Dollar faces headwinds today and US bond Yields slip, which gives Gold the opportunity to rise and take advantage of various factors such as the Covid-19 situation in China, following its poor weekly start.

The upbeat mood can send XAU/USD beyond 1,865, but a strong catalyst will be needed for a rebound that would challenge the EMA200 at around 1,907-9 and there are multiple roadblock from that area on.

Despite today's advance, the precious metal runs its fourth straight negative week and near-term bias is on the downside. As such, it is in danger of fresh lows towards 1,805, but we are not sure if the bears are ready to push towards the 2022 lows (1,780).

In any case, the next leg of the move will likely be determined by the CPI release, which has the potential to spark volatility.