Spot gold (XAU/USD) prices saw a choppy reaction in wake of the just-released US Consumer Price Inflation (CPI) data for May, which came in above expectations across the board. As a result, the kneejerk reaction for gold was to dip to fresh session lows in the $1825 area, though prices have now swung higher once again to trade closer to $1840, above pre-data levels. However, XAU/USD still trades with on-the-day losses of about 0.3%.
The move higher versus pre-data levels in spot gold might reflect a combination of safe-haven demand as US equities come under pressure as markets rebuild Fed tightening bets and fears about inflation after the headline CPI rate jumped to 8.6%, a new four-decade high. Gold is seen by many investors as a hedge against inflation.
But the move higher cuts against moves seen in US bond and currency markets. US yields, particularly at the short-end, have spiked to reflect a build-up of Fed tightening bets and this is also boosting the buck. Gold has a negative correlation to both yields and the dollar. Perhaps that means that gold’s next stop will be a retest of session lows in the mid-$1820s rather than a retest of session highs in the upper-$1840s.
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