Gold Price Forecast with US CPI Data in Focus

• Gold price has edged higher ahead of the US CPI data.
• Analysts expect consumer prices to have risen by over 8% in March.
• Gold price continues to find support in its status as a safe haven and hedge against inflation. 

Inflation data

Gold price has edged higher ahead of the US inflation data. On Tuesday, the Labor Department is scheduled to release CPI numbers for March. PPI and retail sales data are also expected on Wednesday and Thursday, respectively. 

February’s CPI numbers showed that inflation is at a four-decade high at 7.9%. Analysts now expect a higher reading of 8.5% YoY. With the exclusion of the volatile food and energy components, whose prices have soared due to the Russia-Ukraine war, the forecast is for the core CPI to remain unchanged from February’s 0.5% MoM.

The surge in inflationary pressures has shifted the Fed’s tone to a more aggressive one. As indicated in the FOMC meeting minutes released in the past week, this includes the reduction of its $9 trillion balance sheet as soon as its next meeting in May. Besides, several interest rate hikes of half-percentage point are expected in the course of the year.

On the one hand, an environment of higher interest rates strengthens the US dollar while weighing on gold price. This is because the precious metal, which is priced in the greenback, becomes more expensive to buyers holding other currencies. Earlier on Tuesday, the dollar index hit a fresh two-year high of $100.26. 

Besides, prospects of rate hikes have boosted the benchmark 10-year Treasury yields to the highest level since March 2019. Rising yields increase the opportunity cost of holding the non-yielding bullion.  Even so, analysts and traders alike forecast that inflation will continue rising in coming months. This factor, coupled with the ongoing concerns of a global recession, will continue to support gold price in the short term. 

Russia-Ukraine war

Gold price is also reacting to the geopolitics in eastern Europe. Notably, it has been about 6 weeks since Russia invaded Ukraine. During that period, $1,900 has been a steady support level for the precious metal. Prior to late February, that zone was evasive since June 2021. 

In late March, gold price momentarily dropped below $1,900 following an announcement that Russia was planning to scale back on its military presence near Kyiv and Chernihiv. However, Russian troops continued to bomb various areas within Ukraine. With no end in sight for the Russia-Ukraine crisis, the demand for safe havens remain high. Gold and other precious metals are among the conventional safe havens. 

Amid the recent developments of the war in eastern Europe, Ukraine has warned that Russia is planning for a major attack in the eastern region of the country. It is reinforcing its forces with the intent of capturing Donbas; with is a major city in eastern Ukraine. On Sunday, Russia’s Defense Ministry stated that the nation’s troops attacked 86 military targets in Ukraine with high-precision missiles.  

Gold price technical analysis

On Monday, the gold price rose past the crucial level of 1,950.50 for the first time in close to two weeks. At the time of writing, it was at 1,953.40, having pulled back from Monday’s intraday high of 1,970.70.

On a daily chart, it is trading above the 25 and 50-day exponential moving averages. Based on both the fundamentals and technicals, the precious metal will likely record further gains in the ensuing sessions. In particular, I expect it to remain above the crucial zone of 1,900 as the market reacts to the US inflation data scheduled for release in the course of the week.

In the short term, I expect the gold price to hover around the critical zone of 1,950 ahead of the US CPI data. With that in mind, 1,970.70 will be a resistance level worth looking out for. If the released numbers are higher than the prior reading, the bulls may get an opportunity to push it further to 1,988.02.  On the lower side, it will likely find support at 1,929.33.