XAU / USD threatened by US CPI ahead of Fed June rate decision

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Fundamental Forecast of Gold – Neutral

  • Gold prices weakened last week, but cut losses on US NFPs
  • Higher-than-expected US CPI report could reignite gold bears
  • But, the follow-up may have to wait for the Fed’s rate decision.

Anti-fiat gold priceGold was aiming lower last week, cutting some downside progress on Friday. A mixed U.S. Non-Farm Payroll Report drove down Treasury yields and the US dollar, providing XAU / USD bullish momentum. While the average hourly wage exceeded expectations, the gain of flagship jobs reached 559,000, below the consensus of 650,000. As the unemployment rate fell, so did the labor force participation rate. .

The leading event risk for gold next week is arguably Thursday’s US CPI report. A month ago, overall consumer price growth rose 4.2% year-on-year. This was the fastest pace since September 2008 and rekindled bets of a faster-than-expected cut in the Fed’s monetary policy. But the consistently accommodating comments from the central bank quickly dampened those expectations.

The core inflation rate, which excludes volatile food and energy prices, is expected to hit 3.4% year-on-year in May. On the graph below, that would be the highest since early 1993, or just 30 years ago. An unexpected beating in the data could reignite bets on the Fed’s tapering, pushing up bond yields, the US dollar and lowering anti-fiat gold prices.

But, the extent of the follow-up may have to wait for the Fed’s next interest rate decision later this month. Some members, as Patrick Harker, began to talk about when to unwind the loss policy. The central bank’s position, for now, is that recent inflation is transitory, impacted by a weak base effect for a year.

As such, it could be possible that the central bank’s advance anticipation leaves gold in a state of consolidation. Traders can wait for how the Fed might change its tone amid last week’s NFPs and the upcoming CPI report. University of Michigan sentiment is expected to cross wires at 84.0 on Friday, from 82.9 previously. Check DailyFX Economic Calendar for key updates related to the yellow metal.

Core inflation in the United States since 1993

– Written by Daniel Dubrovsky, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter

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