Will gold rally continue post us CPI?

After a blowout of US nonfarm payroll data, the MCX gold price continued to exhibit a strong solid show. The market participants were expecting a better read of the NFP data with one step closer to full US economic recovery. Also an upbeat job data would have stoked inflation worries and somewhere would have given the lead to expectations that the Fed will reduce monetary stimulus, boosting US yields and the dollar. However, US NFP hit a record on weak jobs data and added to the case for ongoing Federal Reserve monetary stimulus. The US nonfarm payrolls showed jobs growth unexpectedly slowed in April, jobs rose by 266,000 in April, trailing the projected 1 million jump. A softer payroll is good for the reflation trade; weakening the dollar across the FX spectrum with a solid bid in gold prices.

But now the test case on US inflation has come back again and the anxiety has jolted the global risk appetite. All eyes will be on tonight's US consumer price index. The Reuters poll expects a rise by 3.6% on year in April, the largest increase in almost a decade. The Federal Reserve already expects higher inflation though officials have pointed to transient factors and base effect for the temporary rise. The upshot is the Fed remains far away from achieving its aim of average inflation of 2% per year. The Fed's ultra-accommodative monetary policy is part of the reason why the dollar downtrend is intact.

However, the caution ahead of the inflation data has led traders to gravitate around the dollar. If the inflation figure comes in line with market expectations then bets for a monetary tightening sooner than expected will push the dollar price even higher, weighing on gold. But if it falls short of the forecast then the dollar will continue to remain subdued with an upside rally on the gold spot.

As seen in the daily chart, after hitting a more than two weeks low of 46462 MCX Gold made a reversal thereafter to currently trading at 47900. Immediate Bollinger band's upper-level resistance is at 48200 and strong top-to-top trend line resistance lies at 48360. So consistent trading above 48400 will open doors for 49000-49700. However, support is located at 47330-47000-46500.