gold futures (GC)

Gold Futures (GC) Recovers Ahead of US Inflation

  • Gold futures (GC) prices consolidated losses at a three-month low ahead of key US inflation data.
  • The dollar pullback reminds buyers of mixed sentiment, but the Fed says growth fears weigh on prices.
  • Another sign of hope for the sellers is the price staying around or below the $1,850 area, although the US CPI could extend the rally.

The gold futures (GC) prices broke above the psychological barrier of $1,850 ahead of a critical US inflation report. The precious metal continues to stay above its 3-month low of $1,836.

Recovery momentum in the gold intensified as the US Dollar Index retreated despite the slowdown in the global economy.

The consumer price index (CPI) for China rose to 2.1% y/y from a consensus of 1.8%, while the producer price index (PPI) exceeded expectations by 7.7% from an annual rate of 8.0%. Higher inflation despite the coronavirus lockdown bolsters expectations for future demand for the yellow metal from China.

According to reports from local authorities in Shanghai, the virus hasn’t spread to eight districts. But unfortunately, this may also boost the prices.

In the same vein, Atlanta Fed President Rafael Bostic commented earlier in the Asia session, saying that the US economy is strong and in high demand. A neutral interest rate of 2.0-2 5% is expected.

However, Loretta Mester, president of the Cleveland Fed and a member of the FOMC, said that market bears do not rule out a 75 basis point interest rate hike forever.

China’s “zero-tolerance” policy for Covid poses another challenge for gold buyers, even as the World Health Organization (WHO) lobbies to loosen restrictions on activities in Shanghai and Beijing. When inflation concerns are serious, the lockdown at the world’s largest industrial hub poses a serious threat to global growth.

Gold sellers are also hopeful about a potential Russo-Ukrainian war and its likely negative consequences. Due to the latest updates, Europe will be rerouting its Russian gas flow, which previously came through Ukraine.

US 10-year Treasury yields and the US Dollar Index (DXY) remain on a downward trend by 2.99%, while S&P 500 futures are posting modest gains near the 4000 mark following a mixed close on Wall Street.

We will need to keep an eye on the new momentum as the US CPI is expected to decline from 8.5% to 8.1% in the coming year. Nevertheless, the focus will be on the US CPI, excluding food and energy, which is expected to drop to 6.0% annually, down from 6.5% previously. If inflation numbers do not ease in April, the US Dollar will see some heavy buying, resulting in gold futures dipping to new multi-month lows.

Gold futures (GC) technical analysis:

Gold futures (GC) 4-hour chart
Gold futures (GC) 4-hour chart

The 4-hour chart of gold futures (GC) shows a positive sign as the bullish candles closed above the $1,850 mark with a rising volume. However, the price is still below the 20-period SMA, which may resist the rallies. In addition, the supply zone of $1,861 – $1,866 also poses a challenge for the buyers.