The gold market is reversing some of Tuesday's positive impetus.
Despite the Core CPI shortfall, the US dollar remains strong.
Ukraine's geopolitical danger is bolstering gold, and Putin is ratcheting up the pressure.
The gold price surged on Tuesday and is consolidating in early Asian markets on Wednesday, following another sharp increase in US inflation announced in the early hours of New York trading. The XAU/USD currency pair is now trading at $1,963.03, down 0.18 percent from a top of $1,968.06 to a low of $1,962.95.
Core CPI missed projections, implying that the Federal Reserve may not be in as much of a rush as the market has implied. Core prices, which exclude food and energy, increased by just 0.3 percent, below estimates of 0.5 percent and marking the weakest gain since September.
However, the US dollar rallied strongly again against the backdrop of falling US shares, reversing the relief bounce as money markets continue to price in a hawkish Fed. On Tuesday, the US Treasury's 10-year auction reached a high yield of 2.72 percent, up from the previous month's high of 1.92 percent. With inflation expectations staying largely stable, if the 10-year yield continues to rise beyond this week's 2.836 percent highs, it will test the October 2018 high above 3.26 percent.
Fed officials are likely to maintain their hawkish stance. In aggregate, this data is unlikely to alter the Federal Reserve's near-term assessment of the need for rate hikes. "Fed governor Brainard (governors always vote) reaffirmed the FOMC's priority of containing inflation," a Westpac analyst explained. "She anticipates some tightening of financial conditions to assist temper demand, along with some loosening of supply limitations, all of which will contribute to lower inflation. She lauded the March CPI report's reduction in core goods prices, but cautioned against putting too much faith in a single piece of data."
As a result, a 50 basis point boost next month is expected to put the US dollar on pace for a March 2020 high near 103 as assessed by the DXY. It has already printed a new daily cycle high of 100.333.
Meanwhile, gold continues to benefit from elevated geopolitical threats, which Russian President Vladimir Putin has ratcheted up.
The US is expected to announce an additional $750 million in arms for Ukraine.
Putin stated on Tuesday that peace negotiations with Ukraine had reached a stalemate. Rather than that, Putin pledged that Russia will accomplish all of its "noble" objectives in Ukraine. "We have once again found ourselves in a dead-end scenario," Putin said during a news conference during a visit to the Vostochny Cosmodrome 3,450 miles (5,550 kilometers) east of Moscow.
"We have no intention of remaining isolated," Putin stressed. "Isolating someone severely in the modern world - let alone a country the size of Russia - is impossible."
This should help to keep gold prices stable in 2022.
Technical Analysis of Gold
Since mid-March, the gold price has been range-trading, and if this is accumulating the 2022 surge, the price may now be ripe for a positive continuation, as indicated by the daily chart:
We have witnessed an effort to break out, but naturally, a retreat is coming, and it is now a matter of how far the bullish impulse can be mitigated before bulls re-enter. However, if the US currency remains strong, $1,930 may come under renewed pressure, and if it does, the near-term possibilities for a move higher will be substantially diminished.
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