Gold waits for directional catalyst
It’s been the same old story with gold prices since bulls attacked the psychological $1900 level roughly two weeks ago.
Other than the explosive volatility witnessed late last week amid US economic data, the precious metal remains trapped within a range with bulls and bears on standby until the next major catalyst. Despite the lack of direction, gold is still up almost 11% this quarter with the technicals in favour of bulls.
However, the pending US CPI figures may set the tone for gold for the rest of this month.
Inflation remains a popular talking point across financial markets with the biggest theme at present the ongoing debate surrounding the timeline of the Federal Reserve’s next move. Markets are expecting overall annual inflation to rise 4.7% in May with the month-on-month figure expected to come in at 0.5%. Core inflation is projected to grow 3.5% compared to May 2020 and 0.5% compared to the previous month.
It is worth keeping in mind that markets were already jittery over rising inflation after April’s print. The recent jump in the core PCE which is the Fed’s favoured measure of inflation and beat in the monthly average hourly earnings for May have also fanned concerns over rising inflationary pressures. If the CPI figures for May meet or exceed market expectations, this may intensify speculation around the Federal Reserve taking action sooner than later. It does not end here.
Further signs of inflationary pressures could sweeten appetite for gold which is seen as a hedge against inflation. However, upside gains may be capped by an appreciating dollar if inflation fears send US Treasury yields climbing.
Looking at the technical picture, gold remains in an uptrend on the daily charts. Lagging indicators remain in favour of bulls with the MACD trading above the zero level while the 50-day Simple Moving Average has crossed above the 100-day. Bulls remain in the driving seat above the $1855 support level with $1916 acting as the first level of interest if $1900 proves to be an unreliable resistance. Should prices trade beyond $1916, gold has the potential to test $1927 and $1959, respectively.
Alternatively, sustained weakness below $1900 could trigger a decline back towards $1870, $1855 and $1842, respectively.