Gold News: Gold Price Retreats as Hot CPI Strengthens Dollar and Yields

Spot Gold Drops After CPI Comes in Hot and Trump Kills the Peace Trade

Spot Gold (XAUUSD) is trading at $4,687.62, down $47.84 or 1.01% Tuesday after two things hit the market at the same time. April CPI came in hotter than expected and Trump called Iran’s latest peace proposal garbage. Either one of those on its own would have pressured gold. Both landing in the same session gave sellers everything they needed.

Technical Outlook

Spot Gold is edging lower on Tuesday after giving back earlier gains. Overnight, the market attempted to spike through the 50-day moving average, but the buying dried up at $4,773.58. Prices turned south for the session and now appear to be vulnerable, following the release of the April CPI report. At 13:16 GMT, Spot Gold (XAUUSD) is trading $4,687.62, down $47.84 or -1.01%.

The market is currently sitting inside a long-term retracement zone at $4,744.34 to $4,541.88. It has been straddling this zone since late March after breaking down to $4,099.12 on March 23. It attempted to cross to the bullish side of the upper or 50% level at $4,744.34 in mid-April but the rally could not extend beyond the 50-day moving average and the market hit a high at $4,891.54.

A similar pattern is taking place currently, but this time, the 50% level at $4,744.34 is forming a resistance cluster with the 50-day moving average at $4,757.38. In my opinion, trader reaction to this area will determine the near-term direction. Simply put, a sustained breakout over the 50-day moving average will be bullish and a sustained breakdown under the 50% pivot will be bearish.

On an upside breakout, near-term targets are a 50% level at $4,850.68, a swing top at $4,891.54 and a 61.8% level at $5,028.04. The key being a potential surge over the swing top.

On the downside, potential support is a minor retracement zone at $4,637.31 to $4,605.15. This is followed by the long-term 61.8% level at $4,541.88 and another retracement zone at $4,495.33 to $4,401.84.

Traders should also be monitoring any test of $4,481.78, the level that separates the Bull Market from the Bear Market. And the long-term support, the 200-day MA at $4,323.04.

Once again it comes down to buying strength to feed a bullish breakout over the 50-day MA, or playing for the pullback into support.

CPI Was the First Hit

April Consumer Price Index came in at 0.6% month-over-month. Annual inflation climbed to 3.8%. Both numbers ran above what traders were positioned for and the reaction was immediate. The 10-Year U.S. Treasury yield moved higher. The U.S. Dollar Index strengthened. Gold dropped almost instantly after the print because the math changed.

Hotter inflation means the Fed stays on hold longer. A Fed that stays on hold longer means yields stay elevated. Yields staying elevated means gold loses the argument because investors have a paying alternative and they take it. That sequence played out in real time Tuesday and Spot Gold (XAUUSD) paid for every step of it.

Oil Made It Worse

June WTI crude oil jumped more than 3% Tuesday after Trump dismissed Iran’s proposal and said the ceasefire was on massive life support. That move matters for gold in a specific way that is easy to miss. Higher oil does not help gold right now. It hurts it. Higher oil feeds inflation. Higher inflation keeps the Fed pinned.

A Fed that cannot cut is the single most bearish factor for Spot Gold (XAUUSD) in the current environment. I’ve been saying this since February and Tuesday confirmed it again. The gold specific rule has not changed. War escalation equals higher oil equals higher inflation equals Fed on hold equals bearish gold. Peace equals lower oil equals lower inflation equals Fed cuts equals bullish gold. Tuesday ran the first scenario hard.

The 50-Day MA Rejected the Rally Overnight

Spot Gold (XAUUSD) actually tried to push through the 50-day moving average overnight before the CPI print hit. Buyers ran it to $4,773.58 and then the buying dried up completely. That rejection matters because it tells you aggressive buyers are not willing to take out offers above the 50-day MA even before the bad inflation data landed. When the CPI confirmed the bearish rate picture, the sellers had a clean run back toward support. The 50% level at $4,744.34 forming a resistance cluster with the 50-day moving average at $4,757.38 is now the ceiling that needs to break before this market has any upside story worth telling.

What Changes This

Wednesday’s Producer Price Index report is the next inflation data point and it lands before the open. A softer PPI would give traders a reason to question whether Tuesday’s CPI was a one-off driven by energy prices or the start of a broader re-acceleration. Either way the PPI sets the tone for Thursday. The Trump and Xi Jinping meeting later this week is the other event worth watching. Any signal out of that meeting that Middle East tensions could ease takes June WTI crude oil lower. Lower oil takes inflation pressure down with it. That is the only path that opens the door for Spot Gold (XAUUSD) buyers to come back with conviction.

What I’m Watching

The minor retracement zone at $4,637.31 to $4,605.15 is the first support area to watch on further weakness. Lose that and the long-term 61.8% level at $4,541.88 becomes the next test followed by the support cluster at $4,495.33 to $4,401.84. Inside that cluster is $4,481.78, the bull market and bear market dividing line. That level has held every time it has been tested. If it fails, the long-term trend conversation changes and the 200-day MA at $4,323.04 becomes the reference point. The 50-day MA at $4,757.38 is resistance. The 200-day MA at $4,323.04 is the long-term floor. Everything between those two levels is the range this market is trading until either the inflation picture shifts or the Middle East finds a durable resolution.

If you’d like to know more about how to trade gold, please visit our educational area.