Gold looks stagnant after a surging US Dollar dragged prices lower. The upcoming FOMC Minutes and Chinese CPI data may spur some movement in the yellow metal as inflation expectations ease. Get your market update from FxWestwater here:
prices are slightly lower in early Asia-Pacific trading, following an overnight drop when a surge in the US Dollar caused broad weakness in precious and industrial metals. XAU prices are trading around 1922, a level where prices have found support through the second half of March. The price action over the last few weeks has been largely consolidative, with gold’s fundamental drivers stacked against each other.
On one hand, the ongoing war in Ukraine is providing a tailwind for bullion by keeping the market on edge as the situation evolves. The Western allies continue to roll out sanctions targeting Russia, which has the unfortunate side effect of complicating the global flow of goods and services. That could keep inflation and market volatility elevated, both of which are supportive elements for the yellow metal.
However, higher inflation is stoking an increasingly aggressive response from central banks. The Federal Reserve is set to hike its benchmark rate by 50 basis points in May, following its 25bps hike in March. Rising rates disadvantage gold, a non-interest-bearing asset. The looming question is whether central banks will be able to get a handle on inflation.
Market-based inflation gauges suggest the answer is yes. The 2-year breakeven rate is trading at 4.3%, which is well above the Fed’s target but down substantially from 4.8% just two weeks ago. The drop inprices lately has certainly contributed to removing some froth there, but the chorus of hawkish commentary from Fed members is another likely contributor. Today’s release minutes from the latest FOMC meeting may shed further light on the Fed’s outlook.
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