US Rate Divergence Is a Risk for Gold, US Inflation Ahead

Gold Analysis and News:

  • Gold Remains Supply, Despite Diverging Real Yields
  • Traders await US inflation data

Gold Remains Supply, Despite Diverging Real Yields

Although US real yields are breaking out of negative yield territory and the US dollar maintains its bullish trajectory, gold prices have managed to hold on to a bid. While I’m struggling to see any noticeable upside for the precious metal, given the movement we’re seeing in actual yields, as I mentioned earlier, until the support at 1880 is breached, technically , gold is in a neutral zone.

Gold chart: daily period

Source: Refinitiv

As shown in the chart below, US real yields have been a good indicator of gold’s potential direction and therefore the current divergence suggests that the outlook for gold is weaker. Meanwhile, safe-haven flows resulting from geopolitical tensions kept the precious metal underpinned. Unless there is a significant deterioration in the ongoing peace talks or an escalation in sanctions, the risks are for gold to pull back given that an ultra-hawkish Fed is just around the corner. . We have started to see a reassessment in financial markets for a hawkish Fed with stocks under pressure, alongside a stronger dollar ahead of the May meeting. In turn, it is possible that gold may be the last to react to this change.

gold against US 10Y Real Yields

Gold Price Forecast: US Rate Divergence Is a Risk for Gold, US Inflation Ahead

Source: Refinitiv

Traders await US inflation data

A source of market volatility will be today’s US inflation print, where the stock is expected at 8.4%, down from 7.9%. However, looking at the forecast distribution, many are expecting an upside surprise, which limits the market’s potential reaction, should a higher-than-expected print materialize. Therefore, there is greater potential for an online print or a slightly softer than expected print to produce an outsized market reaction. That said, the decision could be more of a knee-jerk, given that the data is unlikely to change the near-term outlook for Fed policy.

Breakdown of inflation forecasts in the United States

Gold Price Forecast: US Rate Divergence Is a Risk for Gold, US Inflation Ahead

Source: Refinitiv

The chart below examines the 30-minute reaction to the US CPI across several assets. While context is important on every print, the general reaction has been that a higher than expected print leads to a stronger USD (vs the JPY in particular) with weaker stocks, while a line or below expectations prompted the USD to soften .

30-MInitial reaction to the US CPI

Gold Price Forecast: US Rate Divergence Is a Risk for Gold, US Inflation Ahead

Source: RefinitivDailyFX

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