Gold, XAU/USD, Inflation, Real Yield, Producer Prices – Talking Points
- Gold rises as CPI data suggests inflation may have peaked
- US PPI may affect bullion prices more
- XAU surged above January high, which could lead to further gains
Gold prices rebounded overnight after inflation eased slightly in the United States, according to the latest Consumer Price Index (CPI) for the month of April. The CPI outperformed the wires at 8.3% year over year. That was above Bloomberg’s 8.1% consensus estimate. However, it was just below the 8.5% year-over-year figure in March.
The reaction in gold was likely due to the behavior of the Treasury market. Real yields – the main driver of bullion prices, fell after the CPI reading. A lower real return benefits gold because it is an interest-free asset, which lowers the opportunity cost of gold. The 10-year inflation rate fell by 15 basis points overnight but remained in positive territory. The yellow metal may continue to rise if real yields fall further.
Tonight, the US producer price index for April will be released. Analysts expect the producer price index to cool to 0.5% on a monthly basis, according to a Bloomberg survey. That would be a drop from 1.4%, which is a fairly large drop. This may help calm inflation fears, as factory gate prices are sometimes viewed as a leading indicator of downstream inflation. Gold may rise if tonight’s data comes in less than expected.
Technical Forecast for XAU/USD
Gold prices are moving above the January swing high by trading in the Asia Pacific region, a level that previously provided support. Holding this level may spark more bullish energy to push prices higher. If so, the bearish 20-day simple moving average (SMA) may head higher. Meanwhile, the MACD oscillators and the RSI indicator appear to be improving.
XAU/USD daily chart
The graph was created using TradingView
— By Thomas Westwater, Analyst for DailyFX.com
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