Gold Price Hangs Tough as Markets are Pummelled After Shocking US CPI. Higher XAU/USD Ahead?


Gold, XAU/USD, US Dollar, Fed, FOMC, Treasury Yields, Crude Oil- Talking Points

  • Gold has been bouncing around after US CPI spooked markets
  • APAC equities and bondswent south as investors reeled from the news
  • All eyes on FOMC this Wednesday.Will USD get a lift to sink gold?

The gold price rallied on Friday as panic gripped markets after US CPI came in above expectations at 8.6% year-on-year to the end of May.

This is way above the 8.3% anticipated and the fear of wealth destruction through stagflation is becoming apparent. Gold has eased today as the market is looking at the bump up in real yields and questioning the role of the non-returning precious metal in their portfolios.

Treasury yields are screaming higher, adding to Friday’s gains in the Asian session to start the week. A policy error by the Federal Reserve is widely acknowledged, but there is a growing sense that the Fed might be losing control and talk of a pause in rate hikes in September have gone quiet.

The Federal Open Market Committee (FOMC) meeting on Wednesday could provide more fireworks.

The yield on 1 and 2-year Treasury notes went around 25 basis points (bps) north on Friday and the 2-year note has added another 10 bps today, while the 1-year is 5bps higher at 2.58% at the time of going to print.

US 2-year Treasury futures have the largest short exposure in a year, according to Commodity Futures Trading Commission (CFTC) data.

The US Dollar and the Swiss Franc have been the largest winners in the mayhem while the risk and growth aligned currencies AUD, CAD and NZD have been beaten up.

Equity markets have joined bond markets lower with a sea of red across the region today. Korea’s KOSDAQ index is down over 4%.

Crude oil is slightly softer but remains at elevated levels with the WTI futures contract near US$ 119 and the Brent contract a touch over US$ 120.

The full economic calendar can be viewed here.

Gold Technical Analysis

The gold price is in a descending trend channel after making a high in March that was just below the August 2020 peak of 2,075.

Resistance might be offered at previous highs at 1,910 and 1,920 or at the descending trend line currently at 1,895.

On the downside, support could at prior lows of 1,807, 1,787, 1,779 or 1,753.

Chart created in TradingView

— Written by Daniel McCarthy, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @DanMcCathyFX on Twitter





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