Gold prices witnessed a sharp decline of more than 1% after the release of the US Consumer Price Index (CPI) figures, which surpassed expectations. However, investors quickly seized the opportunity to buy the dip, leading to a partial recovery in XAU/USD.
Despite the anticipation of a more hawkish stance from the Federal Reserve (Fed), gold prices have continued to attract inflows amid ongoing geopolitical tensions. The surge in US Treasury bond yields, fueled by an unexpectedly strong inflation report, exerted downward pressure on XAU/USD as the US dollar strengthened significantly. According to data from the US Bureau of Labor Statistics, the headline CPI rose by 0.4% in March, resulting in a year-on-year increase of 3.5%, surpassing market forecasts.
Furthermore, the minutes from the March FOMC meeting suggested that Fed officials are not inclined to cut interest rates until they are confident that inflation is steadily moving towards their 2% target.
Market sentiment has shifted, with expectations now leaning towards the first rate cut in September instead of June, with fewer than two rate cuts of 25 basis points expected for the year. Consequently, the US dollar surged to a new high in 2024.
Meanwhile, unresolved ceasefire discussions between Israel and Hamas, coupled with concerns over potential retaliation from Iran following an alleged Israeli strike, have contributed to upward pressure on XAU/USD.
During the Asian and early European trading sessions, XAU/USD experienced an uptick. Investors now await the US Producer Price Index (PPI) report, scheduled for release at 12:30 p.m. UTC today. Higher-than-expected figures could weigh on the pair, while lower-than-expected results may bolster XAU/USD bulls. Despite the short-term technical bias remaining bullish as the pair trades above the pivotal 2,320 level, volatility is expected to persist.
