Higher Post-CPI

Gold sits $5/oz better off to print $1,857/oz, operating around Wednesday’s best levels at typing. The move higher has been facilitated by a limited downtick in nominal U.S. Tsy yields, with the USD (DXY) continuing to trade a little below recently made cycle highs.

• To recap Wednesday’s price action, U.S. inflation figures initially spurred a knee-jerk ~$20/oz decline in gold, reversing gains made earlier in the session pre-CPI. The yellow metal rapidly rebounded to close $14/oz higher amidst a retreat in U.S. real yields, erasing the bulk of Tuesday’s losses in the process. The bounce comes as the firmer-than-expected CPI print mixes with recent Fedspeak coalescing around support for back-to-back 50bp hikes for near-term FOMCs.
• To elaborate, known hawk Bullard (St. Louis Fed Pres, voter) said after Wednesday’s CPI print that 50bp hikes were “a good benchmark for now” while re-iterating previously issued views that 75bp hikes are “not my base case”, flagging data-dependence. Atlanta Fed Pres Bostic (‘24) separately voiced support for 50bp moves “until we get to neutral” (FOMC estimate: ~2.4%), while again not ruling out a 75bp hike.
• Elsewhere, June FOMC dated OIS now price in ~61bp of tightening for that meeting, reviving the prospect of a 75bp hike (>40% chance). A look further out points to a more muted change in expectations for the July FOMC, with dated OIS pricing in a cumulative ~106bp of tightening by that meeting, a little higher than pre-CPI levels.
• From a technical perspective, gold remains vulnerable despite its recent move higher, with initial support seen at $1,832.1/oz (May 11 low). Immediate support is a relatively short distance away at $1,865/4/oz (May 10 high), although our technical analyst flags that a break of resistance at $1,909.8/oz (May 5 high) may be needed to confirmation a short-term reversal of the bearish trend.