On Monday, gold prices scaled to a one-month peak early in the session before dropping around 0.5%. High inflation lifted the Treasury yields and the dollar, which in turn tempered the demand for zero-yield gold. The benchmark 10-year yields jumped to their highest in more than a month, which raised the opportunity cost of owning the bullion. Meanwhile, the greenback climbed to a four-week high and made gold more expensive for holders of rival currencies.
Spot gold is currently trading at $1,856.83 per ounce as of 0801 GMT.
On Friday, the Labor Department reported that the consumer price index rose 1.0% in May. Gasoline prices also hit a record high, which raised the expectation that the Federal Reserve would proceed with a 50 basis-rate hike in July. The central bank already hiked the overnight rate by 75 basis points since March and will likely continue raising rates in July and September.
OANDA senior analyst Jeffrey Halley commented that the CPI data hammered equities and benefitted gold. He also noted that inflation pushed the markets into a more vigorous risk aversion mode. It is evident in the reversal of gold’s inverse relationship with the U.S. dollar.
FXStreet senior analyst Dhwani Mehta agreed that the red-hot inflation supported gold. But she predicted that the metal would find it hard to breach the 50-DMA barrier. A move above that level could push gold’s upside towards the 100-DMA at $1,890.
The daily chart shows that gold price conquered the confluence of the horizontal 21 and 200-DMA at $1,842 but met stiff resistance at 100-DMA at $1,882 in early trades. Mehta also noted that the 14-day Relative Strength Index is moving below the midline indicating further weakness.
DailyFX strategist Daniel McCarthy added that gold price is in a descending trend channel after rising just under the August 2020 peak of $2,075. He expects immediate resistance at $1,910 and $1,920 and the descending trendline at $1,895. On the downside, he sees support level at previous lows at $1,807, $1,787, $1,779 or $1,753.
In physical trading, higher prices dampened gold demand in India. It prompted dealers to offer discounts up to $10 per ounce. A local dealer said retail buying would likely remain weak since the wedding season is over and rural consumers focus on planting crops.
Physical demand in China also remains sluggish. People have not returned to the market even after lockdowns were eased. Buyers were reluctant to make purchases because of fresh concerns over another wave of COVID-19.