XAU/USD spikes to fresh multi-week high, above $1,970 post-US CPI

April 12, 2022

A combination of supporting factors pushed spot gold to a fresh multi-week high on Tuesday.
The US CPI accelerated to 8.5% and boosted the metal’s appeal as a hedge against inflation.
Retreating US bond yields prompted some USD profit-taking and further extended support.

Gold caught some bids during the early North American session and jumped to a fresh multi-week high, around the $1,973 region in the last hour. The US consumer inflation showed little signs of easing and topped 8% in March for the first time in more than four decades. In fact, the headline CPI accelerated to 8.5% during the reported month as against expectations for a rise to 8.4% from 7.9% in February. This, in turn, was seen as a key factor that boosted the metal’s appeal as a hedge against inflation. The intraday move up was further fueled by modest US dollar weakness, which tends to benefit the dollar-denominated commodity.

Given that the markets have priced in a 50 bps Fed rate hike move in May, the USD witnessed a typical “buy the rumour, sell the news” kind of trade amid a sharp fall in the US Treasury bond yields. Core CPI was a shade below expectations, which might have forced investors to scale back expectations for a more aggressive policy tightening. That said, concerns that the recent surge in commodity prices would continue to put upward pressure on inflation should limit the downside for the US bond yields. This, in turn, supports prospects for the emergence of some USD dip-buying, which should keep a lid on any meaningful upside for spot gold.

Apart from this, a goodish rebound in the equity markets could further collaborate to cap gains for the safe-haven XAU/USD. Even from a technical perspective, gold was last seen trading near the top end of an upward sloping channel extending from sub-$1,900 levels, or March swing low. This further makes it prudent to wait for some follow-through buying before confirming that the recent slide from the vicinity of the all-time high has run its course and positioning for any further gains. Nevertheless, gold, so far, has managed to hold in positive territory for the fourth straight day and remains at the mercy of the US bond yields/USD price dynamics.