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- Gold price trades on a stronger note on Tuesday.
- Any signs of sticky inflation might further diminish expectations of US interest rate cuts this year, pressuring yellow metal.
- The US PPI report for April and Fed Chair Jerome Powell’s speech will be in the spotlight on Tuesday.
The gold price (XAU/USD) rebounds despite the consolidation of the US Dollar (USD) on Tuesday. The upside of yellow metal might be limited as traders might wait on the sidelines ahead of key US inflation data this week. The higher-for-longer US rate mantra has exerted some selling pressure on the XAU/USD in recent sessions. However, the safe-haven flows due to escalating Middle East tensions might boost the gold price for the time being.
Investors will closely watch the key US economic data this week. The US Producer Price Index (PPI) for April is due on Tuesday, along with Fed Chair Jerome Powell’s speech. The attention will shift to the US Consumer Price Index (CPI), due on Wednesday. These reports could offer insights into the timing of the Fed’s initial rate adjustment. The hotter-than-expected inflation figures might dampen the prospect of a Fed rate cut, weighing on the precious metal. Higher interest rates may reduce overall investment demand for gold as they increase the opportunity cost associated with holding gold.
Daily Digest Market Movers: Gold price holds positive ground, all eyes are on the crucial US inflation data
- Fed vice chair Philip Jefferson called for holding interest rates at current levels until inflation shows more signs of easing, adding that he will continue to look for additional evidence that inflation is going to return to the 2% target.
- The Fed is likely to cut the Fed funds rate by 25 basis points (bps) in September, said 70 of 108 economists, while cutting rates by 50 bps in 2024, said 65 of 108 economists, according to the Reuters poll.
- On Monday, Israeli soldiers moved deep into the ruins of Gaza’s northern frontier to retake an area from Hamas rebels, while tanks and troops pushed a highway into Rafah, forcing Palestinian residents to flee, per Reuters.
- The US Producer Price Index (PPI) for April is expected to show an increase of 2.2% YoY, while the Core PPI figure is estimated to show an increase of 2.4% YoY in the same period.
- The US Consumer Price Index (CPI) inflation is forecast to ease to 3.4% YoY in April from 3.5% prior. Core CPI inflation is projected to drop to 3.6% YoY in April from 3.8% in March.
Technical Analysis: Gold price maintains a positive outlook
The gold price edges higher on the day. The yellow metal keeps the bullish vibe unchanged as XAU/USD remains above the key 100-day Exponential Moving Average (EMA) on the four-hour chart. The upward momentum is reinforced by the 14-day Relative Strength Index (RSI), which is in the bullish zone at 52.70, indicating the support level is likely to hold rather than break.
A high of May 10 at $2,378 acts as an immediate resistance level for the precious metal. Extended gains will pave the way to the $2,400 psychological level. A break above this level will see a rally to an all-time high near $2,432, en route to the $2,500 round figure.
On the other hand, the crucial support level will emerge around the $2,325–$2,340 zone, portraying the confluence of the resistance-turned-support level and the 100-period EMA. The breach of this level will expose a low of May 2 at $2,281.
US Dollar price this week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the weakest against the Pound Sterling.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.16% | -0.27% | 0.00% | 0.01% | 0.37% | 0.04% | 0.23% | |
| EUR | 0.16% | -0.11% | 0.17% | 0.15% | 0.53% | 0.20% | 0.39% | |
| GBP | 0.27% | 0.12% | 0.28% | 0.27% | 0.65% | 0.30% | 0.51% | |
| CAD | -0.01% | -0.17% | -0.28% | -0.01% | 0.36% | 0.04% | 0.20% | |
| AUD | 0.00% | -0.16% | -0.27% | 0.01% | 0.38% | 0.05% | 0.23% | |
| JPY | -0.38% | -0.55% | -0.66% | -0.36% | -0.36% | -0.36% | -0.14% | |
| NZD | -0.04% | -0.20% | -0.32% | -0.04% | -0.05% | 0.34% | 0.19% | |
| CHF | -0.24% | -0.39% | -0.51% | -0.22% | -0.23% | 0.14% | -0.19% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
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.