Gold Prices Turn to US CPI Report, Will Softer Inflation Rekindle XAU/USD?

Gold Prices

Gold prices sank about 0.6 percent on Monday, extending losses from last week. The anti-fiat yellow metal inversely tracked a boost to 2-year Treasury yields during the first half of the day. XAU/USD can be quite sensitive to the direction of US Treasury rates. That is because of gold’s inherent lack of return for holding the precious metal, compared to something that either pays a dividend or yield. Over the past 24 hours, it seems traders were focused on a survey from the Federal Reserve Bank of New York on consumer anticipation. Specifically, median anticipated growth in household income was seen falling 1.3 percentage points to 3.3% as of January. But, respondents continue to see inflation elevated, unchanged at 5%. That would speak to deteriorating real incomes and more signs that people are feeling discouraged about beating inflation.

Markets Rallied On The News, With The Dow Jones.

S&P 500 and Nasdaq 100 finishing in the green. The tech sector outperformed. From this perspective, if people believe wage growth will slow, that could be another sign that further disinflation could be in store for the economy. Although, there could also be a debate about stagflation instead. For gold, this matters because over the remaining 24 hours, January’s US CPI report will cross the wires. Headline inflation is seen slowing further to 6.2% y/y from 6.5%. For those interested, I created a model that tries to predict CPI using lag analysis. The model has a slight bias to a downward surprise. Such an outcome may further boost year-end Fed pivot bets. If that sends the US Dollar and bond yields lower, gold could be looking at a green day.

Gold Technical Analysis
On the daily chart, gold broke under the 50-day Simple Moving Average. Confirmation is lacking at this moment, but further downside progress would open the door to extending a reversal of the uptrend from November. Otherwise, a turn higher places the focus on the 20-day SMA. The latter could hold as resistance, maintaining the near-term downside focus.

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