Gold extends sell-off ahead of US CPI inflation data
LONDON (June 10) Gold (XAU/USD) slides to fresh 11-week lows on Wednesday as mounting speculation that the Federal Reserve (Fed) could raise interest rates later this year weighs on demand for the non-yielding metal. At the time of writing, XAU/USD is trading around $4,163, down 2.30% on the day.
The sell-off has been amplified by technical selling after XAU/USD broke below its 200-day Simple Moving Average (SMA) at $4,444 following the release of the US May Nonfarm Payrolls report on Friday. The next major test for Gold comes with the release of US inflation data due at 12:30 GMT.
Economists expect the headline Consumer Price Index (CPI) to accelerate 4.2% YoY in May from 3.8% in April, while core CPI is forecast to edge up 2.9% from 2.8%.
The pickup in inflation comes after the US-Iran war triggered a sharp rise in energy prices, pouring cold water on the Fed's efforts to bring inflation back toward its 2% target.
Before the war began, markets were pricing in at least two rate cuts this year. Those bets have now disappeared, with traders increasingly expecting a rate hike by year-end.
If inflation comes in above expectations, markets could further increase bets on a Fed rate hike. That would likely add to downside pressure on Gold as higher interest rates increase the opportunity cost of holding non-yielding assets.
On the other hand, a softer inflation reading could prompt traders to scale back rate hike expectations and trigger a short-term rebound in the precious metal.
However, any rebound in Gold may prove limited as inflation risks remain elevated. The closure of the Strait of Hormuz continues to disrupt global Oil flows, keeping a geopolitical risk premium embedded in crude prices.
Hopes for a near-term peace deal between the United States and Iran appear slim after both sides launched renewed strikes on Tuesday. The geopolitical uncertainty has kept the US Dollar (USD) well bid, creating an additional headwind for Dollar-denominated Gold.
FXStreet
