Gold Could Be Heading to New Highs Despite Hotter-Than-Expected Inflation Data
Gold and silver were looking to bounce back following the CPI-related drop on Tuesday, in a relatively quieter day for data and with the Fed in the blackout period ahead of next week’s FOMC meeting.
Following last week’s sharp gains to repeated all-time highs, gold investors were not in a hurry to pile in and push the metal further higher at the start of this week.
There was always the possibility of a rebound in bond yields and the dollar, given the importance of inflation data and following a mixed jobs report on Friday.
As it turned out, today’s CPI report was hotter than expected on both the headline and core fronts, which triggered a quick rally in the dollar and a sell-off in government bonds.
As yields rose, the opportunity cost of holding gold increased, and so did the selling pressure. Still, the weakness was not too significant in the grand scheme of things, with the metal shedding some $25 worth of gains.
Even if gold were to weaken more in the short term, this wouldn’t necessarily be a sign that the metal has topped.
Many investors who missed the opportunity to buy gold when it started to rally last month will be waiting to pick up short-term dips. So, more gains could well be on the way soon.
Federal Reserve Chair Jerome Powell's sunny take on inflation is still music to traders' ears, even though the core CPI nudged up by 0.4% in February, a smidge higher than expected.
But the market's reaction? Not quite as wild as before when faced with similar surprises in inflation. It looks like traders are still hanging onto Powell's less-than-hawkish vibe, which has everyone thinking about potential rate cuts in June and keeping the market response in check.
In the rates futures market, there has only been a slight
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