May 15

Gold climbs above $2,370 as US yields edge lower ahead of inflation data

Gold extends its uptrend and trades above $2,370 in the European session on Wednesday after gaining nearly 1% on Tuesday. The benchmark 10-year US Treasury bond yield stays in the red below 4.5% ahead of US inflation data, helping XAU/USD keep its footing.

Technical Overview

The daily XAU/USD pair chart shows buyers timidly adding longs. The pair holds above the 23.6% Fibonacci retracement of the April/May rally at $2,326.50, a relevant support level. Furthermore, it finds buyers for a second consecutive day around a mildly bearish 20 Simple Moving Average (SMA), while the longer ones maintain their bullish slopes far below the current level. Finally, technical indicators turned higher within positive levels, although with limited upward strength.

In the near term, and according to the 4-hour chart, XAU/USD is neutral to bullish. Gold is seesawing around a bullish 20 SMA while the 100 and 200 SMAs converge just below the aforementioned Fibonacci level. Technical indicators, in the meantime, have turned higher, although the Momentum indicator remains below its 100 line, limiting the odds of a firmer advance.

Support levels: 2,326.50 2,310.40 2,298.70

Resistance levels: 2,356.90 2,367.10 2,381.40


Fundamental Overview

Spot Gold advanced towards the $2,350 region mid-Tuesday, ticking north on the US DollarDollar'sess. XAU/USD picked at $2,356.96 following the release of the United States (US) Producer Price Index (PPI) data. The figures indicated inflationary pressures persist, as the monthly PPI rose 0.5% in April, up from -0.1% in March and above the 0.3% expected. Furthermore, it rose 2.2% YoY, while the core annual reading was 2.4%, unchanged from March. The overall figures were not really worrisome, as they stand just above the desired 2% inflation level, but the monthly uptick spurred concerns as it suggests the increase at wholesale levels will soon show in consumers.

The US will release the April Consumer Price Index (CPI) report on Wednesday. Although the Federal Reserve (Fed) bases its monetary policy decision on a different inflation measure, any deviation will likely trigger action across the FX board.

Meanwhile, US indexes struggle to overcome the bad news. The Dow Jones Industrial Average and the S&P500 are stuck around their opening levels, while the Nasdaq Composite is roughly 40 points up. Stocks' behavior suggests market players are not particularly worried about the figures, while the absence of such concerns limits demand for safe-haven gold.

Fed Chairman Jerome Powell spoke at a moderated discussion with De Nederlandsche Bank (DNB) President Klaas Knot at the Foreign Bankers' Association's General Meeting in Amsterdam and delivered quite a hawkish message. Powell said the economy has been performing well due to a very strong labor market. He also noted the labour market continues to rebalance but remains strong, adding policymakers need to be "patient" on "inflation. "Confidence in inflation moving back down is lower than it was. My confidence in that is not as high as it was before," Powell said, smashing hopes for a soon-to-come rate cut.