Key Takeaways:
COMEX gold futures tested the $4,700.00 per ounce resistance level after data showed U.S. inflation for April rose at its fastest pace in nearly three years.
"The trend from the last two months will look a lot more like 2022 than the disinflation story markets have been telling themselves," Jordi Visser, head of AI Macro Nexus Research for 22V, said in a note.
The Consumer Price Index increased 3.8% from a year ago, above the 3.7% consensus forecast and the highest annual reading since May 2023, the Labor Department reported Tuesday. The monthly price gain was 0.6%, driven primarily by a sharp rise in energy costs. Excluding volatile food and energy, core CPI registered a 2.8% annual gain.
The data puts gold in a precarious position, caught between its traditional role as an inflation hedge and the risk of a hawkish Federal Reserve response. Higher-than-expected inflation can be bullish for the metal, but it also increases pressure on the central bank to raise interest rates, which strengthens the dollar and raises the opportunity cost of holding non-yielding gold.
The primary driver for the inflationary spike remains energy prices, which have climbed since the start of the U.S. conflict with Iran snarled tanker traffic in the Strait of Hormuz. The average price of regular gasoline is up 38 cents from a month ago, accounting for 40% of the monthly CPI increase. The effects are spreading, with airfares jumping 2.8% in April and over 20% from a year ago.
"This is no longer a textbook fight between the Fed and inflation. It is a fight between inflation control, debt service, and political pressure to ease anyway," Visser wrote. Markets are underpricing the risk of rate hikes, according to Bank of America U.S. rates strategist Mark Cabana, who noted that an actual hiking cycle could hit risk assets hard.
This article is for informational purposes only and does not constitute investment advice.
