Gold Prices Rise as Yields Slip Despite Robust Headline CPI

Key Insights

• Gold prices whipsawed but moved higher.
• The dollar continued to rally.
• CPI hits the highest level since 1981.

Gold prices continued to rally, pushing through resistance as yields eased despite robust inflation. The dollar rose, but yields eased as core inflation fell less than expected. The 10-year Treasury yield hit highs not seen since 2018 but reversed and declined along with the 2-year yield.

On Tuesday, the Labor Department reported that the U.S.  consumer price index rose 8.5% year over year, above expectations for an 8.4% increase in inflation. Core inflation, which excludes food and energy, increased 6.5% on a 12-month basis, in line with the expectation. Core inflation rose just 0.3% for the month, less than the 0.5% estimate.

Technical Analysis

Gold prices rallied on Tuesday, hitting a three-week high and poised to test higher levels. Support is seen near the 10-day moving average at 1,938. Resistance is seen near the March highs at 2070. Gold prices will need to clear the March highs for the uptrend to proceed.

Short-term momentum has turned positive as the fast stochastic continues to accelerate higher. Prices are overbought. The fast stochastic is printing a reading of 93, above the overbought trigger level of 80. Medium-term momentum has turned positive as the MACD (moving average convergence divergence) generated a crossover buy signal.

This scenario occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses above the MACD signal line (the 9-day moving average of the MACD line). The MACD histogram is printing in positive territory with an upward sloping trajectory which points to higher gold prices.