- Gold Price is creeping higher on a softer dollar ahead of the ECB.
- US inflation data revealed on Wednesday and Thursday weighed on the greenback, as traders’ best hedge against inflation is Gold
- Geopolitical tensions also remain elevated and the prospects of Russo-Ukraine peace poor, underpinning XAUUSD.
Gold Price (XAUUSD) is attempting to climb and is reaching towards the recent highs made on Wednesday near $1,980. The US dollar is a laggard on Thursday after falling overnight as US yields paused in their rally giving some relief to forex space as investors await the European Central Bank.
On Wednesday, another raft of US inflation data crossed the wires. In March, prices paid by producers, also known as the Producer Price Index (PPI), added further pressure on the Federal Reserve to hike rates, as its reading rose by 11.2% y/y, higher than expected and the most significant jump since 2010. At the same time, the so-called core PPI, which excludes volatile items, increased 9.4% y/y, higher than the 8.4% foreseen.
Now that US inflation data is in the rearview mirror, the hot inflation surrounding the US economy reinforces the case of the Federal Reserve to raise rates aggressively. Fed officials have opened the door for 50-bps rate hikes at its May meeting, while STIRs shows a 94% chance of a 0.50% lift to the Federal Funds Rate (FFR).
Late in the US session, Fed Governor Christopher Waller (voter in 2022) crossed the wires. Waller said that data supports 50 bps increases, and he prefers to front-load aggressive hikes at the May meeting and possibly more in June and July. He stated that he wants to get above neutral by the latter half of this year.
Also read: Silver Price Forecast: XAG/USD bulls march firmly towards $26.00 on a soft greenback
Alongside falling US Treasury yields, geopolitics is another reason why investors are buying Gold, with the most recent updates on the Russo-Ukraine war suggesting that peace remains farther than expected.
Russia will view US and NATO vehicles transporting weapons on Ukrainian territory as legitimate military targets, Russia’s Deputy Foreign Minister said on Wednesday, comments that will escalate tensions with the West. The latest punchy Kremlin rhetoric comes after Putin said on Tuesday that peace talks with Ukraine had hit a dead end.
Also read: Russia will view US and NATO vehicles transporting weapons on Ukrainian territory as legitimate target
Instead, Putin promised that Russia would achieve all of its “noble” aims in Ukraine. “We have again returned to a dead-end situation for us,” Putin told a news briefing during a visit to the Vostochny Cosmodrome 3,450 miles (5,550 km) east of Moscow. “We don’t intend to be isolated,” Putin added. “It is impossible to severely isolate anyone in the modern world – especially such a vast country as Russia.”
Meanwhile, analysts at TD Securities explained that gold is benefiting from large-scale Chinese purchases, ”as our tracking of the aggregate net positions held by Shanghai’s largest traders long and short suggests that this cohort has increased their gold length to its highest levels in the past twelve months.”
Meanwhile, the analysts also explained that ”comex shorts have largely been wiped out and ETF inflows have slowed as the fear trade subsides. However, a Fed that is signaling its intent to reach neutrality by year-end and to start an aggressive QT regime doesn’t exactly stand out as a macro context in which gold inflows are expected to firm.”
”In turn, either gold bugs are sleepwalking towards a significant drawdown as inflows could subside alongside larger short positioning, or the resilience in prices is a canary in the coal mine for a different macro regime on the horizon.”
ECB coming up
The ECB Governing Council is expected to leave the key interest rates on hold at their April meeting, the deposit facility at -0.5%.
”Bond purchases should also continue until June but then most likely cease,” analysts at Westpac said, adding that the focus will be on President Lagarde’s press conference, ”including any guidance on how long after the end of QE rates might start to rise, given the difficult combination of inflation a long way above target and growth downgrades due to soaring energy prices.”
Gold price technical analysis
The price of gold is trying to break out to the upside. However, a stubbornly strong US dollar could prevail amid further hawkish rhetoric from Fed speakers given their ongoing concerns about US inflation. Therefore, the $1930s could come under pressure again as this correlates with a 61.8% golden ratio retracement. If that were to give out, the near-term prospects of a move higher will be severely diminished.