Gold price outlook with US inflation data in the horizon

Gold price has rallied past the crucial resistance level of $1,950 ahead of the US inflation data. Even with prospects of interest rate hikes, its status as a hedge against inflation and safe-haven will continue to boost its value.  

Fundamentals

In the ensuing sessions, financial markets will be reacting to the US inflation data scheduled for release over the course of the week. For instance, on Tuesday, investors will be eyeing the CPI numbers. PPI and retail sales are also scheduled for release later in the week.  

Are you looking for fast-news, hot-tips and market analysis?

Sign-up for the Invezz newsletter, today.

According to the US Labor Department, consumer prices rose to a 40-year high of 7.9% in February on a year-on-year basis.  Analysts expect an even higher rate of 8.5% for March. With the exclusion of the volatile fod and energy components, core CPI is expected to remain unchanged at 0.5% MoM. The ongoing Russia-Ukraine war, which has led to a surge in energy and food prices, has contributed to the rise in inflation.

If the data points to an escalation of the inflationary pressures, it is likely that the Treasury yields will rise further and boost the US dollar. As at the time of writing, the benchmark 10-year yields were at 2.74% after easing from the over three-year high of 2.78% that it hit earlier on Monday. The surge in US bond yields is a reaction to the Fed’s aggressive tone on dealing with inflation.

Based on the FOMC meeting minutes released in the previous week, investors expect the US central bank to hike interest rates by a half-percentage point in coming meetings as the officials acknowledge the need to act more aggressively in dealing with the heightened inflationary pressures.

While a stronger US dollar and rising Treasury yields will likely curb gold price gains, its status as a hedge against inflation will continue to boost its value. Indeed, I expect it to remain above $1,900 for the remainder of the week. Investors remain concerned that the Fed may not hike rates fast enough to control inflation. From this perspective, the precious metal will likely rise further in the short term.

Besides, the ongoing Russia-Ukraine war will be a key bullish driver of gold price in the new week. On Sunday, Russia’s Defense Ministry indicated that the country’s troops used high-precision missiles on 86 military targets in Ukraine. Since Russia invaded Ukraine in late February, there has been a rising demand for precious metals and other safe havens.