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Gold prices may climb further if US PPI data disappoints

Gold gains as CPI data hints that inflation may have peaked; US producer price index (PPI) may sway bullion prices further and XAU climbs above January high, potentially fueling further gains.

Gold prices staged a rebound overnight after inflation cooled slightly in the United States, according to the latest consumer price index (CPI) for April. The CPI crossed the wires at 8.3% on a year-over-year basis. That was higher than the 8.1% Bloomberg consensus estimate. However, it was slightly lower from March’s 8.5% y/y figure.

The reaction in gold was likely due to the Treasury market’s behavior. Real yields – a major driver for bullion prices, fell following the CPI print. Lower real yields benefit gold because it is a non-interest-bearing asset, which lowers the opportunity cost of gold. The 10-year inflation-indexed rate fell 15-basis points overnight but remain in positive territory. The yellow metal may continue to gain if real yields drop further.

Tonight will bring the US’s producer price index (PPI) data for April. Analysts see PPI cooling to 0.5% on a month-over-month basis, according to a Bloomberg survey. That would be down from 1.4%, representing a rather significant drawdown. That may help to calm inflationary fears, as factory-gate prices are sometimes seen as a leading indicator for downstream inflation. Gold may move higher if tonight’s data comes in below expectations.

XAU/USD technical forecast

Gold prices are moving above the January swing high through Asia-Pacific trading, a level that has previously provided support. Holding that level may ignite further bullish energy to drive prices higher. If so, the falling 20-day Simple Moving Average (SMA) may cap upside. Meanwhile, MACD and the RSI oscillators appear to be improving.

XAU/USD daily chart


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This information has been prepared by IG, a trading name of IG Markets Ltd and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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