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James Hyerczyk
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Comex Gold

Gold futures are inching lower on Wednesday shortly after the regular session opening after an attempt to continue yesterday’s strong rebound rally fizzled due to the lack of fresh buyers. On Tuesday, gold prices rose after short-sellers were caught on the wrong side of the market following the release of the U.S. consumer inflation report.

Although the report indicated that inflation grew more than expected, the reaction by Treasury bond traders surprised the market, suggesting the report had already been baked into the market.

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In my opinion, gold rose, not because of higher inflation, after all, investors also had high expectations for inflation, but because Treasury yields fell, dragging down the U.S. Dollar. And we all know that gold is a dollar-denominated asset and tends to rally when the gold market weakens.

Today, yields are moving higher and the U.S. Dollar is flat. These two factors are weighing on gold prices.

At 12:56 GMT, June Comex gold is trading $1745.40, down $2.20 or -0.13%.

Treasury Yields Recovering

U.S. Treasury yields are up on Wednesday, following a slightly higher-than-expected inflation reading the previous session. The move suggests that Tuesday’s drop in yields may have been a false reaction, or a “buy the rumor, sell the fact” move. If so then, gold traders may have been caught in a “bull trap”.

In recapping Tuesday’s main event, the Labor Department reported that the consumer price index, a core measure of inflation, rose 0.6% in March on the previous month. However, consumer prices jumped 2.6% on the same period last year, the highest year-on-year gain since August 2018 and much higher than the 1.7% growth reported in February.

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Daily Forecast

Later today, volume and volatility could pick up as Federal Reserve Chairman Jerome Powell is set to discuss the economic recovery from the pandemic at 16:00 GMT at The Economic Club of Washington.

Fed Chair Richard Clarida is also slated to talk about the central bank’s new framework and outcome-based forward guidance at 19:45 GMT at the Shadow Open Market Committee meeting.

Gold may have risen following the release of the CPI data, but it was not because of concerns over inflation. Expectations of higher inflation have been driving yields higher for months and gold prices have been falling.

So trade the yields, don’t trade the reports.

For a look at all of today’s economic events, check out our economic calendar.

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