Gold price gains ground as US CPI inflation fuels Fed rate cuts

  • Gold price trades in positive territory due to the weaker USD on Thursday. 
  • The softer US CPI inflation data prompted the hope that the Fed may cut interest rates, boosting the price of precious metals.
  • The Fed’s hawkish remarks might cap gold’s upside; Fed’s Barr, Harker, Mester, and Bostic are set to speak on Thursday. 

The gold price (XAU/USD) gains traction amid the weaker US Dollar (USD) on Thursday. The recent Consumer Price Index (CPI) report showed inflation in the US slowed in April, prompting market players to increase their bets on the US Federal Reserve (Fed) rate cuts this year. A lower interest rate might benefit the yellow metal, as it means the borrowing cost of investing in gold decreases. 

Gold traders will focus on US Building Permits, Housing Starts, the weekly Initial Jobless Claims, the Philly Fed Manufacturing Index, and Industrial Production on Thursday. Also, the Fed’s Barr, Harker, Mester, and Bostic are scheduled to speak on Thursday. Nonetheless, the hawkish comments from the Fed’s officials might boost the US Dollar (USD) and cap the precious metal’s upside in the near term.

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Daily Digest Market Movers: Gold price edges higher due to cooling US inflation, weaker Retail Sales

  • The US Consumer Price Index (CPI) increased by 3.4% YoY in April, compared to a rise of 3.5% in March, which is in line with market expectations. On a monthly basis, the headline CPI inflation dropped to 0.3% MoM in April from 0.4% in March, below the consensus of 0.4%. 
  • The core CPI inflation, which excludes volatile items like food and energy, rose by 3.6% YoY in April, compared to the previous reading of 3.8%. The monthly core CPI eased to 0.3% MoM in April from 0.4% in March. 
  • US Retail Sales came in at 0% MoM in April from a 0.6% rise in March, worse than the estimation of 0.4%.  
  • Fed Bank of Minneapolis President Neel Kashkari said on Wednesday that the central bank needs to watch the economy carefully to see if current policy rates are restrictive enough.
  • Financial markets are currently pricing in a nearly 75% chance of a rate cut by the Fed in September 2024, a rise from 65% before the US CPI report, according to the CME's FedWatch Tool.
  • According to the World Gold Council's Q1 2024 report, global gold demand climbed by 3% to 1,238 tonnes, marking the strongest first quarter since 2016. 

Technical Analysis: Gold price’s bullish outlook holds strong 

The gold price edges higher on the day. Technically, the yellow metal has formed an ascending trend channel since May 2. The yellow metal maintains its positive stance unchanged on the four-hour chart as XAU/USD holds above the 100-period Exponential Moving Averages (EMA). The Relative Strength Index (RSI) stands in bullish territory around 72. The overbought RSI condition indicates that further consolidation cannot be ruled out before positioning for any near-term XAU/USD upside. 

The first upside barrier will emerge near the upper boundary of the ascending trend channel and psychological level of $2,400. A bullish breakout above this level will expose $2,432 (all-time high) en route to $2,500 (round figure). 

On the downside, a breach of the lower limit of the ascending trend channel of $2,345 will pave the way to $2,334 (100-period EMA), followed by $2,300 (psychological mark). 

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 New Zealand Dollar.

USD   -0.97% -1.26% -0.45% -1.30% -0.91% -1.57% -0.74%
EUR 0.96%   -0.29% 0.53% -0.32% 0.05% -0.58% 0.24%
GBP 1.24% 0.29%   0.82% -0.04% 0.34% -0.31% 0.52%
CAD 0.44% -0.54% -0.83%   -0.84% -0.47% -1.12% -0.27%
AUD 1.28% 0.32% 0.03% 0.85%   0.37% -0.26% 0.56%
JPY 0.90% -0.07% -0.35% 0.47% -0.38%   -0.67% 0.18%
NZD 1.56% 0.60% 0.30% 1.12% 0.27% 0.65%   0.84%
CHF 0.72% -0.24% -0.54% 0.29% -0.57% -0.18% -0.83%  

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).

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.


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