Gold price has reversed the losses recorded after the higher-than-expected US CPI numbers. According to the US Department of Labor, consumer prices rose by 5.0% in May on a year-on-year basis. The figure, which is the highest since August 2008, exceeded the forecasted 4.7% and the prior month’s 4.2%. Without the volatile food and energy components, the core CPI came in at 3.8% YoY, which is the highest since January 1992. Analysts had expected a reading of 3.4%, which was higher than April’s 3.0%.
Despite the higher-than-expected inflation data, the gold price movements show that investors have bought the Federal Reserve narrative. The US central bank has insisted that the ongoing inflationary pressures are transitory. As such, it intends to maintain an accommodative monetary policy while allowing inflation to run beyond its 2% target for a while.
The fear & greed index, which monitors the emotion driving the market, is currently at a neutral of 53. Both at a weekly and monthly level, the mood has remained neutral at 46 and 49 respectively. At the same time, the safe haven demand has shown fear among investors. Subsequently, it has heightened the appeal of gold as a safe-haven and hedge against inflation.
Gold price technical outlook
Gold price is up by 0.35% at 1,895.38. As a knee-jerk reaction to the higher-than-expected US CPI numbers, the price dropped to an intraday low of 1,869.86 before rebounding to its current level. In the previous session, it dropped from an intraday high of 1,899.08. On a two-hour chart, it is trading above the 25 and 50-day exponential moving averages. Based on the fundamentals and technical indicators, a bullish outlook remains.
I expect gold price to surge higher to retest and move past the psychological level of 1,900. On the downside, it is likely to find support along the 25 and 50-day EMAs at 1,890.05. A move below 1,885 will invalidate this thesis.