- Gold prices rise ahead of the ECB on a weaker dollar.
- US inflation data released on Wednesday and Thursday weighed on the greenback as traders’ best hedge against inflation is gold
- Geopolitical tensions also remain elevated and prospects for a Russo-Ukrainian peace bleak, underpinning XAUUSD.
Price of Gold (XAUUSD) is attempting to move higher and is approaching recent highs from Wednesday near $1,980. The US dollar lagged behind on Thursday after falling overnight as US yields paused in their rally, bringing some relief to the currency area as investors wait for the European Central Bank.
Another spate of US inflation data crossed the lines on Wednesday. In March, prices paid by producers, also known as the producer price index (PPI), added pressure on the Federal Reserve to hike interest rates as their value rose 11.2% yoy, higher than expected and the most significant jump since 2010. At the same time, the so-called core PPI, which excludes volatile items, rose 9.4% y/y, higher than the forecast 8.4%.
Now that the US inflation data is in the rearview mirror, the hot inflation surrounding the US economy is bolstering the Federal Reserve’s case for aggressively raising interest rates. Fed officials opened the door for 50 basis point rate hikes at their May meeting, while STIRs show a 94% probability of a 0.50% hike in the Federal Funds Rate (FFR).
Late in the US session, Fed Governor Christopher Waller (voter in 2022) crossed the lines. Waller said the data supports a 50 basis point hike and he prefers to advance aggressive hikes at the May meeting and possibly more in June and July. He stated that he intends to come across neutral by the second half of this year.
Also Read: Silver Price Prediction: XAG/USD Bulls March Firmly towards $26.00 on a soft Greenback
Along with falling US Treasury yields, geopolitics is another reason investors are buying gold, with recent updates on the Russo-Ukrainian war suggesting the peace is lasting longer than expected.
Russia will view US and NATO vehicles transporting weapons on Ukrainian territory as legitimate military targets, Russia’s deputy foreign minister said Wednesday, comments escalating tensions with the West. The latest hard-hitting Kremlin rhetoric comes after Putin said on Tuesday that peace talks with Ukraine had reached an impasse.
Also Read: Russia Will Consider US and NATO Vehicles Transporting Weapons on Ukrainian Territory as Legitimate Targets
Instead, Putin promised that Russia would achieve all of its “noble” goals in Ukraine. “We have returned to a dead end for ourselves,” Putin said in a news conference during a visit to the Vostochny Cosmodrome, 5,550 km east of Moscow. “We don’t want to be isolated,” Putin added. “It’s impossible to seriously isolate anyone in the modern world – especially in a country as big as Russia.”
Meanwhile, analysts at TD Securities explained that gold is benefiting from large-scale Chinese buying, “as our tracking of the aggregate net positions held by Shanghai’s largest long and short traders suggests this cohort has its gold length at its highest.” in 2020 has increased over the past twelve months.”
Meanwhile, analysts also stated that “Comex shorts have largely been wiped out and ETF inflows have slowed as fear trading eases. However, a Fed signaling its intention to reach neutrality by year-end and launch an aggressive QT regime does not exactly stand out in a macroeconomic context where gold flows are expected to firm.”
“In turn, gold bugs are sleepwalking toward significant loss as inflows could tail off alongside larger short positions, or price resilience is a coal mine canary for another macro regime on the horizon.”
ECB is coming
The Governing Council of the ECB is expected to leave key interest rates unchanged at its April meeting, and the deposit facility at -0.5%.
“Bond purchases should also continue until June, but will then most likely be halted,” Westpac analysts said, adding that the focus will be on President Lagarde’s press conference, “including any projections for how long after QE rates end.” continue to rise given the difficult combination of well-above-target inflation and slowing growth due to rising energy prices.”
Technical analysis of the price of gold
Gold prices are trying to break out to the upside. However, a stubbornly strong US dollar could prevail despite further hawkish rhetoric from Fed spokesmen amid ongoing US inflation concerns. Therefore, the 1930s may come under pressure again as this correlates with a 61.8% golden ratio retracement. If that ends, the short-term prospects for any upside will be severely diminished.
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