Gold Rebounds After Fainting Due To Inflation Spike

1. Gold Rebounds After Fainting
Due To Inflation Spike

2. Points To Be Covered Today:
• Gold Recovered After A Downward Response
• CPI Annual Inflation Rate
• Implications For Gold
• Gold Is A Proven Long-term Hedge Against Inflation
• Gold Technical & Fundamental Overview
• Gold News & Analysis
• Gold Technical Analysis
• Gold Price & Chart

3. Gold Recovered After A Downward Response
• Gold recovered after a downward response to the surge in inflation.
• What’s next for the yellow metal?
• Gold rebounded after an initially bearish reaction to the BLS report showing
that inflation soared 4.2% in April year-to- year.
• This means we have an inflation annual rate doubling the Fed’s target and the
highest since the Great Recession as the chart below shows.

4. CPI Annual Inflation Rate

5. CPI Annual Inflation Rate - I
• It might now seem counterintuitive, but traders worried that the jump in the CPI would force
the Fed to tighten its monetary policy earlier than anticipated.
• However, it seems that the US central bank managed to convince the markets that it would
remain dovish for a very long period and that April’s inflation reading wouldn’t
accelerate the first hike of the federal funds rate.
• Federal Reserve Governor Christopher Waller said that the Fed would need “several more
months of data” before considering modifications to its stance.
• He added “now is the time we need to be patient, steely-eyed central bankers, and not be
head-faked by temporary data surprises.” So, don’t fight the Fed, interest rates will stay at
zero for several months, thus supporting the yellow metal!

6. How the Consumer Basket Work
• After all, the Fed’s narrative is that the current inflation is transitory.
• Of course, the April surge was partially caused by a 10% increase in the cost of
new, as well as used cars and trucks – this accounted for a great part of the overall
rise.
• Interestingly enough, the massive spike in car prices was in part generated by
temporary supply-chain disruptions, i.e., the shortage of microchips used in
automobile production.
• However, one can almost always find an element without which inflation is smaller.
But one can also almost always find an element without which inflation is higher.
• This is how the consumer baskets work: some goods are getting more expensive,
others are getting cheaper, etc.

7. Inflation
• So, although May’s inflation reading will likely be smaller, inflation may be more lasting
than many analysts believe.
• There are many arguments for this.
• First, the surge in the broad money supply.
• Second, rising producer prices in China, so there might be an import of inflation.
• Third, the realization of the pent-up demand.
• Fourth, the rising input prices and more room for passing them on consumers.
• Fifth, April’s sluggish job creation signals that wages will have to rise to entice people to
return to work (all the recent unemployment benefits have made current wages less
appealing).
• So, producers could try to pass these increases in wages on consumers, just as with rising
input prices.

8. Implication For Gold
• What does inflation imply for the gold market? Well, from the fundamental
perspective, higher and more permanent inflation is positive for the
yellow metal.
• Inflation lowers the real interest rates and the purchasing power of the
greenback, supporting gold.
• Of course, the short-term relationship between inflation and gold is more
complicated (and less bullish than in theory), especially when higher inflation
translates into higher nominal bond yields and expectations of a more hawkish
Fed.

9. Gold Is A Proven Long-term Hedge Against Inflation
• However, gold is a proven long-term hedge against inflation, so “gold can be a
valuable component of an inflation- hedging basket”, as the WGC’s Investment
Update shows.
• What is important here is that the Fed has become more tolerant of higher inflation.
• Therefore, we will have an environment of higher inflation and dovish Fed behind
the curve, which implies lower real interest rates and a weaker dollar.
• Hence, gold should attract attention as a hedge against inflation – actually, it’s
already happening, as market sentiment toward gold has recently improved, while
outflows in gold ETFs have slowed.
• And, as the chart below shows, the price of gold has jumped this week above
$1,850.

10. Gold Prices In 2021

11. Gold Technical Overview

12. Gold Technical Overview - I
• From a technical perspective, the recent range-bound price action over the past few trading sessions points to
indecision among traders.
• This, in turn, makes it prudent to wait for a sustained move in either direction before placing any aggressive bets.
Meanwhile, dips below the $1,800 mark might continue to find some support near the $1,795-93 horizontal support,
which should act as a key pivotal point for intraday traders.
• A convincing break below might prompt some technical selling and accelerate the slide further towards the $1,780-78
support zone. Some follow-through selling below the $1,775 level will negate any near-term positive bias and turn the
commodity vulnerable.
• The next relevant support is pegged near the $1,762-60 region, below which the XAU/USD could slide back to retest
June monthly swing lows, around the $1,750 area.
• On the flip side, the $1,815-18 region now seems to have emerged as immediate resistance. This is followed by the
very important 200-day SMA, around the $1,828-29 zone.
• A sustained strength beyond will be seen as a fresh trigger for bullish traders and set the stage for an extension of the
recent positive momentum witnessed over the past three weeks or so.
• The commodity might then aim to surpass an intermediate barrier around the $1,852-55 region and test the next major
hurdle near the $1,870 level.

13. Gold Fundamental Overview
• Gold showed some resilience below the $1,800 mark and regained some positive traction
on Friday.
• A weaker US dollar was seen as a key factor that benefitted the dollar-denominated
commodity amid worries about the economic fallout from the spread of the highly
contagious Delta variant of COVID-19.
• That said, a strong rally in the US equity markets and a modest bounce in the US Treasury
bond yields kept a lid on any further gains for the commodity.
• Apart from this, indications that the Fed is moving towards tapering its asset purchases
sooner than anticipated also acted as a headwind for the non-yielding yellow metal and
capped the upside.
• The June FOMC meeting minutes released last Wednesday revealed that policymakers
expect conditions to reduce the pace of asset purchases could be met earlier than
previously expected.

14. Gold Fundamental Overview - I
• Fed officials also agreed that they must be ready to act if inflation or other risks materialize,
suggesting that QE tapering discussions could begin in the coming months.
• Hence, the market focus will remain on the latest US consumer inflation figures due on Tuesday.
This, along with the Fed Chair Jerome Powell's semi-annual congressional testimony on
Wednesday and Thursday, will play a key role in determining the next leg of a directional move for
the XAU/USD.
• In the meantime, a generally positive tone around the Asian equity markets prompted some fresh
selling on the first day of a new trading week.
• The precious metal has now erased a major part of its gains posted on Friday, though the downside
seems limited amid absent relevant market-moving economic release from the US.
• Heading into this week's key data/event risks, the broader market risk sentiment and the USD price
dynamics will continue to influence the commodity. Traders might further take cues from the US
bond yields to grab some short-term opportunities.

15. Gold Fundamental Overview - II

16. Gold News & Analysis
• Gold prices are at a critical resistance level.
• Bears could be on the verge of a restest of the solid daily support.
• The focus for the week will be on US CPI in the main and the greenback.
• XAU/USD battles $1810 amid renewed buying interest.

17. Gold Technical Analysis
• Technically, gold has moved up to the 38.2% Fibonacci retracement of the mid-June drop.
• The daily support structure between 1,782 and Friday's lows that meet the 10-day EMA is
so far holding up as well.
• Bulls will have the 14 June lows of 1,844 in focus on a break of the 61.8% mean reversion
at 1,842.
• However, there could be a retest of the support first to draw in some extra demand for the
push higher to the next structure.
• The bulls continue to probe bear's commitments there as follows:

18. Gold Technical Analysis - I

19. Gold Price & Chart

20. Gold Rebounds After Fainting
Due To Inflation Spike

21. THANKS FOR LISTENING
Gold Rebounds After Fainting Due To Inflation Spike