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Gold Prices at Risk as All Eyes Turn to US CPI Inflation Data

Gold Prices at Risk as All Eyes Turn to US CPI Inflation Data

Ilya Spivak, Head Strategist, APAC

GOLD, CPI, INFLATION, FED, US DOLLAR – TALKING POINTS:

  • Gold prices stall as firming Fed rate hike bets, rising US Dollar cap rebound
  • US CPI is now in focus, with aworrying range of outcomes for bullion prices
  • Breaking range the floor may target sub-$1800, resistance just below $1900

Gold prices have stalled following a rebound from mid-May lows. That move tracked parallel to a rebound in the S&P 500 stock index – a benchmark for market-wide risk appetite – while the US Dollar corrected lower. A moderating 2023 Fed rate hike outlook seemed like the underlying inspiration.

The start of June has offered what may be the resumption of the preceding trend, which saw the Greenback soar as stocks and bullion fell amid worries about rapid tightening. Fed Funds futures now show two hikes next year, having been unsure of even one just two weeks ago. Priced-in inflation bets have firmed too.

GOLD MAY BE ON THE DEFENSIVE AFTER US INFLATION DATA

This puts May’s US CPI data squarely in the spotlight. It is expected to show mild cooling in the pace of price growth: the core year-on-year rate is seen ticking down to 5.9 percent, from 6.2 percent in April. The range of probable scenarios seems to bode ill for the yellow metal.

If CPI tops expectations, a hawkish turn in Fed rate hike projections looks likely to boost the Dollar while gold declines. An especially large drop might offer some initial support, but such a move could also stoke recession fears, lifting USD on haven-seeking grounds and pressuring anti-fiat alternatives.

An inline result might be problematic also, offering an easier path for the resumption of pre-release trends favoring a firmer policy view and a stronger US currency. Gold might manage an uptick in the narrowly defined scenario where a modestly larger-than-expected CPI drop cools Fed fears without setting off alarms about growth.

GOLD TECHNICAL ANALYSIS

Prices are idling below support-turned-resistance capped at 1885.57. A topside break out of congestion that establishes a firm foothold above this barrier eyes another former support at 1918.48 as the next hurdle on the way higher. Gearing up an approach toward the $2000/oz figure might follow.

Initial support is anchored at 1829.38. Securing a daily close below this barrier would go a long way toward signaling that the dominant decline from early March has resumed. Probing below the $1800/oz handle to challenge the mid-May low at 1787.03 may come next.

Gold Prices at Risk as All Eyes Turn to US CPI Inflation Data

Gold price chart created using TradingView

GOLD TRADING RESOURCES

--- Written by Ilya Spivak, Head Strategist, APAC for DailyFX

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter

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

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