- Gold falls 1%, retreating from $2,350, despite typically supportive lower US Treasury yields.
- US economic events, including inflation data and a speech by Fed Chair Powell, are poised to influence markets.
- Fed Vice-Chairman Jefferson was hawkish, stressed importance of driving inflation toward 2% target.
Gold prices retreated sharply on Monday from near $2,350 even though US Treasury yields declined, undermining appetite for the Greenback. Traders brace for a busy economic docket in the United States (US) led by the release of inflation figures, Retail Sales, and the May 14 speech of Federal Reserve (Fed) Chair Jerome Powell.
Earlier on Monday, Fed Vice-Chairman Philip Jefferson addressed the media in a Q&A session at the Cleveland Fed. He said, “We continue to look for additional evidence that inflation is going to return to our 2% target.”
The XAU/USD trades at $2,336, down 1% amid a risk-on impulse. Wall Street continues to post gains. Recent labor market data, such as April’s Nonfarm Payrolls and last week’s Initial Unemployment Claims, could pressure the Fed. In its latest monetary policy statement, officials recognized that the risks to achieving the Fed’s dual mandate of fostering maximum employment and price stability have become more balanced over the past year.
Meanwhile, the US Bureau of Labor Statistics (BLS) is expected to release the producer and consumer inflation data for April on May 14 and 15. If price pressures reaccelerate, the Fed can hold rates “higher for longer.”
Daily digest market movers: Gold falls as US data could influence Fed’s rate path
- Gold prices fell amid lower US Treasury yields and a strong US Dollar. The US 10-year Treasury note yields 4.479% and is down two basis points (bps) from its opening level. The US Dollar Index (DXY), which tracks the Greenback’s performance against six other currencies, falls 0.10% to 105.20.
- The Producer Price Index (PPI) for April is expected to be at 0.3% MoM, a tenth above the prior month’s number. Core PPI is foreseen at 0.2% MoM, unchanged compared to March.
- April’s Consumer Price Index (CPI) is projected to remain unchanged compared to March’s reading at 0.4% MoM. The Core CPI is expected to resume its lower trend from 0.4% in March to 0.3% MoM.
- Investors are eyeing Fed Chair Jerome Powell’s speech on May 14.
- Further data will be featured during the week, led by Retail Sales on May 15, Initial Jobless Claims, and Industrial Production on May 16.
- The New York Federal Reserve released its monthly Survey of Consumer Expectations on Monday, showing that the year’s inflation expectations increased to 3.3% vs. 3% in March. The data came after the University of Michigan Consumer Sentiment poll showed that inflation expectations for a one-year outlook rose from 3.2% to 3.5%.
- Interest rate cut expectations toward the end of the year remain at 34 basis points (bps), according to data provided by the Chicago Board of Trade (CBOT).
Technical analysis: Gold price tumbles below $2,350 with bears eyeing $2,300
The uptrend in the Gold price remains intact, even though from a technical perspective the formation of a quasi Shooting Star candlestick pattern followed by a bearish Belt Hold line opened the door for a leg down. Although momentum favors buyers, the short term is aiming lower, meaning they’re losing traction.
Hence, XAU/USD’s first support would be the May 9 low of $2,306, followed by the $2,300 figure. Once cleared, the next stop would be the 50-day Simple Moving Average (SMA) at $2,249.
On the other hand, if buyers reclaim $2,359, look for a test of the April 26 high at $2,352. A breach of the latter would expose the $2,400 figure, immediately followed by the April 19 high at $2,417 and the all-time high of $2,431.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
