- The US Price Price Index (IPP) for May for May, increasing the prospects for a Fed fees cut in September.
- Tensions between Iran and Israel increase the attractiveness of gold as a safe refuge, and gold prices shoot.
- The Xau/USD extends its profits, with prices currently testing wedge resistance above $ 3,380.
Gold (Xau/USD) has emerged as a key beneficiary of the weakness of the US dollar (USD), an issue that is expected to drive prices on Thursday.
With prices currently around the 380 $ mark, geopolitical risks and the fundamental background of the USA continue to support the demand for safe gold refuge.
The publication of the US Production Price Index (IPP) index on Thursday has shown that inflation is slowing down at the wholesale level. The general IPP showed an annual increase of 2.6% in May, in line with the forecasts of analysts, after an increase of 2.5% in April. The underlying IPP, which excludes volatile goods, fell to 3% in May, from 3.2% in April.
After the missing surprise in the NPC numbers on Wednesday, a greater confirmation that price pressures are decreasing could provide an additional impulse to gold as the expectations of a rate cut in September increase in September.
The threat of a conflict in climbing in the Middle East after reports that Israel is considering a military attack on Iran and Trump’s latest tariff threats support the precious metal, which benefits from safe refuge flows.
In addition, NBC News reported, citing five people familiar with the matter, which Israel is considering taking military measures against Iran in the next few days. At the same time, Trump confirmed Wednesday that American staff is being transferred from parts of the Middle East due to the growing tensions between Israel and Iran. This occurs before the sixth round of nuclear conversations between the US and Iran, scheduled for this weekend.
The recent headlines on trade also added to the pessimistic mood of the market. Trump has declared that the US will establish its own terms for unilateral tariffs, eclipseing the optimistic narrative around the “commercial truce” between the US and China announced on Wednesday.
Trump declared that “we send letters in the coming weeks informing them about the agreement.” These comments were reported by Bloomberg on Thursday.
Movements of the Daily Gold Market: US inflation, Fed rates expectations and golden holdings of central banks
- For the Federal Reserve (Fed), softer inflation provides margin for interest rate cuts, which in turn has reduced the demand for the yields of the US Treasury bonds, adding additional pressure on the US dollar and supporting gold.
- Before the publication of the US CPI on Wednesday, the CME Fedwatch tool indicated that analysts were valuing a 52% probability of a feature cut in September. However, after the publication of these inflation reports, the probability has increased to approximately 60%, with rates that are still expected to be maintained within the range of 4.25%-4.50%in June and July meetings.
- The European Central Bank (ECB) published its annual report on the euro on Wednesday, which showed that the holdings of the central banks were 36,000 tons, near the highest levels from the Bretton Woods system. As central banks continue to increase their holdings this year, gold prices are expected to remain stable in the short term.
Technical Gold Analysis (Xau/USD): The bulls are directed to $ 3,400
From a technical point of view, gold prices are quoting above the resistance zone of 3,380 $, about $ 3,390 at the time of writing, a level that is aligned with the upper limit of the formation of ascending wedge. This technical graphic pattern, which was formed in the daily chart, emerged after prices bounced from the minimum of mid -May about $ 3,320.
With a movement above this area opening the door to the maximum of last week around the psychological level of $ 3,400, the historical maximum of April $ 3,500 could be in sight again.
Meanwhile, the relative force index (RSI) is 59 and points up, indicating a bullish bias. Downwards, the psychological level of $ 3,350, which has provided support throughout the week, remains intact. Below is the fibonacci setback of 23.6% of the maximum of January-April around $ 3,291.
In order for the bassist impulse to win traction, a break in this area could pave the way to the next large psychological level of $ 3,200.
Daily Gold Graph (Xau/USD)
FAQS inflation
Inflation measures the rise in prices of a representative basket of goods and services. General inflation is often expressed as an intermennsual and interannual percentage variation. The underlying inflation excludes more volatile elements, such as food and fuel, which can fluctuate due to geopolitical and seasonal factors. The underlying inflation is the figure on which economists focus and is the objective level of central banks, which have the mandate of maintaining inflation at a manageable level, usually around 2%.
The consumer price index (CPI) measures the variation in the prices of a basket of goods and services over a period of time. It is usually expressed as an intermennsual and interannual variation. The underlying IPC is the objective of the central banks, since it excludes the volatility of food and fuels. When the underlying IPC exceeds 2%, interest rates usually rise, and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually translates into a stronger currency. The opposite occurs when inflation falls.
Although it may seem contrary to intuition, high inflation in a country highlights the value of its currency and vice versa in the case of lower inflation. This is because the Central Bank will normally raise interest rates to combat the greatest inflation, which attracts more world capital tickets of investors looking for a lucrative place to park their money.
Formerly, gold was the asset that investors resorted to high inflation because it preserved their value, and although investors often continue to buy gold due to their refuge properties in times of extreme agitation in the markets, this is not the case most of the time. This is because when inflation is high, central banks upload interest rates to combat it. Higher interest rates are negative for gold because they increase the opportunity cost to keep gold in front of an asset that earns interest or place money in a cash deposit account. On the contrary, lower inflation tends to be positive for gold, since it reduces interest rates, making bright metal a more viable investment alternative.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
