Market Data 
- Gold price rebounds despite investors’ expectations that the Fed will keep interest rates at current levels until the third quarter of this year.
- Increasing geopolitical tensions and physical Gold buying by global central banks keep strengthening Gold’s appeal.
- US core PPI grew strongly by 2.4% from estimates of 2.3% and the prior reading reading of 2.0%.
Gold price (XAU/USD) moves higher after falling to $2,330 in Thursday’s early New York session. The precious metal rebounds as safe-haven demand counters waned Fed rate cut prospects.
Traders have priced out strong speculation that the Federal Reserve (Fed) will pivot to rate cuts in the June meeting. Investors pare Fed rate cut bets drastically after the United States Consumer Price Index (CPI) report for March showed that core price pressures rose more than expected for straight three months.
Hot inflation figures have heightened fears that US interest rates will remain higher in the range of 5.25%-5.50% for a longer period. This is a favorable scenario for interest-bearing assets, such as US bonds and the US Dollar. 10-year US Treasury yields fell slightly to 4.56% in Thursday’s London session but remain close to more than a four-month high. The US Dollar Index (DXY) trades close to an almost five-month high near 105.30.
Generally, higher bond yields increase the opportunity cost of holding investments in non-yielding assets such as Gold. Gold price has retreated from fresh all-time highs at $2,365. However, the near-term demand for Gold is still intact due to heightened geopolitical risks. Fears of direct involvement of Iran in the Israel-Hamas war in Gaza have increased as the Israeli army is planning to invade Rafah, where most of the displaced Palestinians are refuged.
Apart from that, pent-up demand for Gold from global central banks is expected to keep its price supported. The World Gold Council (WGC) showed early this week that China extended its Gold buying spree in February for the 17th consecutive month.
Daily digest market movers: Gold price recovers despite hot US annual core PPI
- Gold price bounces back after falling to $2,330 as Federal Reserve rate cut expectations fade after the United States consumer price index data for March turned out sticky. The US inflation rose more than expected due to higher gasoline prices, rentals and insurance costs.
- The monthly headline and core CPI grew by 0.4%, while investors had forecasted a slower growth rate of 0.3%. In the first three months of this year, monthly core inflation rose steadily by 0.4%, more than double from 0.17%, the pace required for price pressures to return to the desired rate of 2%.
- Price pressures remaining stubbornly higher in the first quarter, along with strong labor market conditions, will allow Fed policymakers to delay rate cut plans. The Federal Open Market Committee (FOMC) minutes for the March meeting, released on Wednesday, indicated that policymakers were worried about higher-than-expected inflation readings in the first two months of this year.
- The CME’s Fedwatch tool shows that bets supporting rate cuts in the June and July meetings have been winded, and traders are now expecting the Fed to begin reducing borrowing costs from the September meeting. Also, financial market participants are anticipating that the Fed will cut interest rates only two times this year instead of three, which is what policymakers projected in the latest dot plot. At the start of the year, investors anticipated as many as six rate cuts for 2024.
- Meanwhile, the US core Producer Price Index (PPI) data for March remains mixed. The PPI data shows the pace at which producers have increased or decreased prices of goods and services at factory gates.
- Annual headline PPI dipped to 2.1% from expectations of 2.2% but remained higher than the prior reading of 1.6% in February. Monthly headline PPI rose slowly by 0.2% from the consensus of 0.3% and the prior reading of 0.6%. However, annual core PPI, which excludes volatile food and energy prices accelerated to 2.4% from expectations of 2.3% and the former reading of 2.0%. Monthly core PPI increased by 0.2% as expected, slower than February’s reading of 0.3%.
Technical Analysis: Gold price eyes all-time highs around $2,365
Gold price strives to recover to fresh lifetime highs of $2,365 after US inflation data for March turned out sticky. A mild correction is largely anticipated as momentum oscillators turned extremely overbought. The 14-period Relative Strength Index (RSI) is expected to cool down after sustaining in the bullish range of 60.00-80.00 since the beginning of April.
The near-term appeal of the precious metal remains upbeat as all short-to-long-term Exponential Moving Averages (EMAs) are sloping higher. On the downside, March 21 high at $2,223 will be a major support area for the Gold price bulls.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
