Spot gold slid on Wednesday across the board hotter than expected US CPI inflation report that showed that both headline and core CPI climbed more than forecast. Spot gold closed with a loss of 0.80% at $2334.
The Core CPI rose 0.40% for the third straight month Vs the forecast of 0.30%. The headline CPI accelerated 3.50% on a y-o-y basis as the core was noted at 3.80%; both the readings exceeded their respective estimates of 3.4% and 3.70%. Housing and gasoline costs accounted for more than half of the increase in the overall CPI as shelter prices remained sticky as rent and owners’ equivalent rent were both up 0.40%. The Supercore services gauge, which excludes housing, recorded a 0.65% monthly gain. Car insurance and medicare costs rose once again. The three-month annualized rate has now risen to 4.60% from under 4% in February. June rate cut hopes have all but vanished as markets now look for only two rate cuts. The US Dollar Index and the US yields surged on the CPI report pressurising commodities as risk appetite was hit.
Now, the US interest rates may stay higher for longer. The ten-year US yields took a peak above 4.50% level as the yields surged 4.27% to settle at 4.545%, whereas the US Dollar Index surged 1.05% to close at 105.19. The Dollar Index is expected to extend its gains to 108 levels in the near term, which will be bearish for commodities in general.
FOMC minutes showed that uncertainty over US inflation persists.
Today’s US data include PPI (March) and weekly job data. Unsettling PPI readings will pressurise gold further. Markets will look forward to the ECB’s monetary policy decision, too. A dovish monetary policy outcome will strengthen the US Dollar Index and can weigh on gold prices.
Total known global gold ETF holdings fell for the second straight day to 81.904MOz.On the geopolitical front, senior Israeli officials said progress has been made in ceasefire negotiations, which would include the release of hostages and Palestinian prisoners.Losses in gold were limited on geopolitical concerns as intelligence reports showed that the US and its allies believe major missile or drone strikes by Iran or its proxies against military and government targets in Israel are imminent. In that case, a significant widening of the six-month-old Middle East conflict would be possible.
Gold is expected to trade with a bearish tilt on dwindling rate cut hopes, though heightened geopolitical tensions will keep the metal volatile. The US PPI inflation data may pressurise the yellow metal further.
Support is at $2300/$2265/$2250. Resistance is at $2350/$2365/$2375/2400.
(The author is Associate VP, Fundamental Currencies and Commodities, Sharekhan by BNP Paribas)
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