Gold Prices Break Higher After US CPI Sank US Dollar, Where to for XAU/USD?

Gold, XAU/USD, US CPI, Inflation, Bonds, Fed – Asia Pacific Market Open

• Gold prices roar higher as in-line US CPI report sinks US Dollar
• Markets slowly pricing out 2 more Fed rate hikes in months ahead
• XAU/USD breakout restores upside momentum, hinting at gains

Asia-Pacific Market Briefing – US CPI Report Boosts Gold Prices as USD Sinks

Gold prices roared higher on Thursday in the aftermath of December’s US inflation report. Headline CPI crossed the wires at 6.5 percent y/y, which was in line with expectations and down from November’s 7.1% result. There seemed to be rising expectations of a lower-than-anticipated outcome being priced in by markets. But, as expected, this was an unlikely scenario.

Meanwhile, the core rate clocked in at 5.7%, which was also as expected and down from 6.0% prior. Looking at the chart below, we can see that the gap between headline and core continues to shrink. At 0.8 percentage points, it is now the smallest since February 2021. Meanwhile, the shelter component clocked in at 7.5% y/y! This means housing is outperforming both headline and core CPI.

But, that is as expected due to the lag impact of housing as it slowly makes its way into official statistics. Peak shelter might occur between March and April. While energy prices continue to weaken, food has been sticky. The latter clocked in at 10.4% y/y. An ongoing egg shortage is also not helping. So, what were the key takeaways from a market perspective and precious metals?

Well, markets are slowly taking away expectations of a further 2 rate hikes over the next couple of Federal Reserve policy meetings. This meant Treasury yields turned lower and the US Dollar weakened. Anti-fiat gold thus capitalized on this dynamic and may continue doing so in the near term. Silver also aimed higher, but XAG/USD has been unable to find a meaningful upside breakout.

Looking ahead to Friday’s Asia-Pacific trading session, gold may continue pushing higher. The economic docket is fairly quiet, leaving risk appetite as the key driver. Wall Street did finish in the green on Thursday, opening the door to a rosy session for indices like the ASX 200, Nikkei 225 and Hang Seng Index. That may bode ill for the haven-linked US Dollar.

A Closer Look at Inflation

Gold Technical Analysis

On the daily chart, gold finally broke above the 1869 – 1879 resistance zone. Prices stopped right on the 100% Fibonacci extension level at 1897. This has also exposed April highs, which make for a key zone of resistance between 1978 and 1998. Negative RSI divergence is also no longer present, showing that upside momentum is picking up. Putting all of this together, gold might be aiming higher ahead.

XAU/USD Chart

Chart Created in TradingView

— Written by Daniel Dubrovsky, Senior Strategist for DailyFX.com

To contact Daniel, follow him on Twitter:@ddubrovskyFX