Gold prices could rise further if US PPI data disappoints

Gold, XAU / USD, inflation, real dividends, producer prices – Talking Points

  • Gold rises as CPI data suggest inflation may have peaked
  • The US producer price index (PPI) may further affect gold bullion prices
  • The XAU climbs above the January high, potentially fueling further gains

Gold prices staged an overnight recovery after inflation cooled slightly in the US, according to the latest consumer price index (CPI) for April. CPI crossed the threads by 8.3% on an annualized basis. That was higher than Bloomberg’s consensus estimate of 8.1%. However, it was slightly lower from March’s 8.5% y / y figure.

The reaction in gold was probably due to the behavior of the financial market. Real interest rates – a significant driver of gold bullion prices, fell after the CPI print. Lower real dividends benefit gold because it is a non-interest-bearing asset, which lowers the alternative cost of gold. The 10-year inflation-indexed interest rate fell 15 basis points overnight, but remains in positive territory. The yellow metal may continue to win if real interest rates fall further.

Tonight, the U.S. Producer Price Index (PPI) brings data for April. Analysts see PPI cooling to 0.5% on a month-over-month basis, according to a Bloomberg study. That would be a decrease from 1.4%, which represents a rather significant decline. This may help to dampen inflation fears, as factory prices are sometimes seen as a leading indicator of downstream inflation. Gold may move higher if tonight’s data falls below expectations.

gold vs real dividends

XAU / USD Technical Forecast

Gold prices are moving above the high swing in January through trade in Asia-Pacific, a level that has previously provided support. Keeping this level can ignite additional bullish energy to drive prices higher. If so, the falling 20-day Simple Moving Average (SMA) could limit the upside. Meanwhile, the MACD and RSI oscillators appear to be improving.

XAU / USD daily chart

xau diagram

Diagram created with TradingView

— Written by Thomas Westwater, analyst for Technewscity

To contact Thomas use the comment field below or @FxWestwater on Twitter