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Gold Price Forecast: US CPI Data Unlikely to Support XAU Prices

Gold Price Forecast: US CPI Data Unlikely to Support XAU Prices

Thomas Westwater, Analyst

Gold, XAU, Treasury Yields, Breakevens, Inflation, CPI - Talking Points

  • Gold prices muted in APAC trading after overnight gains
  • US CPI data provides the key risk event for bullion traders
  • Technical outlook leans bearish after SMA crossover

Gold prices moved higher overnight as US Treasury yields fell and stocks rose. That upside has stalled through today’s Asia-Pacific session. The benchmark 10-year note’s yield fell back below the 3% mark. That helped to cool the US Dollar, which helped support precious metals.Gold prices are higher this month, but prices remain well below levels traded at earlier this year.

Inflation expectations have risen modestly over the last several weeks, a tailwind that has helped to support bullion prices, with breakeven rates rising across most tenures. At the same time, Fed rate hike bets, via fed funds futures, and overnight index swaps have remained largely unchanged. That suggests the current projected rate trajectory from the Fed can tame inflation. Altogether, it’s a rather weak backdrop for a bullish outlook on gold prices.

However, this week may see that outlook disrupted. The United States will see updated inflation numbers for May cross the wires via the consumer price index (CPI). Analysts expect to see the year-over-year figure to drop at 8.2%, according to a Bloomberg survey. That would represent a slight cooldown in price growth from April’s 8.3% y/y rise. The core component, a measure that removes food and energy prices and is preferred by the Fed, is seen falling to 5.9% y/y from 6.2% y/y.

A hotter than expected print, particularly in the core measure, may fuel some upside in the yellow metal. However, the Fed may move quickly to signal its intolerance to a hotter-than-expected figure as the central bank wants to avoid high expectations from becoming anchored in the economy. Mr. Powell’s lieutenants may already be lying in wait to talk down Friday’s CPI data. Such a move by the Fed would likely trim any gold gains made in that scenario.

XAU/USDTechnical Forecast

Gold prices are trading just under a trendline from the August 2021 low and the 61.8% Fibonacci retracement. Just below current prices is the 200-day Simple Moving Average (SMA). A break above or below those levels may induce a move higher or lower. The 50-day SMA, however, just crossed below the 100-day SMA, which is generally seen as a bearish crossover.

XAU/USD Daily Chart

gold price forecast chart

Chart created with TradingView

--- Written by Thomas Westwater, Analyst for DailyFX.com

To contact Thomas, use the comments section below or @FxWestwater on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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