Market Data 
- Gold price rises close to 1% after bouncing off two-week low of $2,325.
- Strong US economic data dampens hopes for Fed easing, pressured Gold prices last week.
- Fed officials indicate longer timeline to achieve 2% inflation target, impacting Gold’s appeal.
- Upcoming US PCE Price Index anticipated to report a core increase of 2.8% YoY and headline growth of 0.3% MoM.
Gold price is up on Monday amid thin trading due to holidays across both sides of the Atlantic, particularly the UK and the US. The yellow metal bounced off two-week lows of $2,325, as US Treasury yields finished the last week down, while the Greenback weakened across the board.
The XAU/USD trades at $2,354 on Monday, gaining close to 1% at the time of writing. Solid economic data from the United States (US) hurts market participants’ hopes that the Federal Reserve (Fed) will ease monetary policy this year. Consequently, this undermined the non-yielding metal, which tumbled by more than 3% last week.
Fedspeak weighed on Gold prices as officials acknowledged it would take longer than previously thought to curb stickier inflation to the Fed’s 2% core inflation goal. Although the golden metal is considered a hedge against inflation, higher US Treasury yields sponsored the last leg down of XAU/USD.
UBS analysts chimed in, “We expect gold prices to stay volatile and price setbacks to be shallow, targeting Gold prices to test new record highs later this year.”
A scarce macroeconomic calendar during the week is expected to reveal April’s Personal Consumption Expenditures (PCE) Price Index, the Fed’s favorite inflation gauge. Estimates suggest the core reading will print at 2.8% YoY, while headline PCE is foreseen edging higher to 0.3% MoM.
Daily digest market movers: Gold price rises amid weak US Dollar
- Gold prices are boosted by the decline in US Treasury yields and a softer US Dollar.
- US 10-year Treasury note is yielding 4.461% and loses one-and-a-half basis points, undermining the Greenback. The US Dollar Index (DXY), which tracks the buck’s performance against a basket of peers, trades at 104.58, down 0.15%.
- US economy continues to fare well, as evidenced by last week’s S&P Global PMIs, which highlighted increased business activity. However, investor uncertainty about the economic outlook persists due to a worse-than-expected US Durable Goods Orders report released on Friday.
- FOMC Minutes showed that Fed officials remained uncertain about the degree of policy restrictiveness. They added that “it would take longer than previously anticipated to gain greater confidence in inflation moving sustainably to 2%.”
- BBH analysts commented that since the latest Beige Book released on April 17, the US inflation has remained sticky despite some signs of softening in the labor market. They added, “We expect a balanced tone in this report that will allow the Fed to take a wait and see approach with regards to easing.”
- Fed funds rate futures estimate just 25 basis points of interest rate cuts in 2024, according to data provided by the Chicago Board of Trade (CBOT).
Technical analysis: Gold price clings to gains above $2,330
Gold price uptrend remains intact despite retreating below the $2,400 figure. Buyers are gathering traction as depicted in the Relative Strength Index (RSI) indicator, which has turned bullish, hinting that higher prices lie ahead.
If XAU/USD clears $2,350, that would expose the $2,400 mark. Further gains lie overhead as buyers target the year-to-date high of $2,450, followed by the $2,500 mark.
On the other hand, if bears keep the XAU/USD price below $2,350, they need to push prices below the May 8 low of $2,303. Once surpassed, the May 3 cycle low of $2,277 would follow.
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.
