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Market participants are laser-focused on tomorrow’s CPI report

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Gold pricing declined earlier this week on the heels of the most recent jobs report for March which was released on Friday. However, because markets were closed a delayed reaction occurred beginning Monday morning in Australia and moving through Hong Kong, London, and then New York with June gold futures trading to a low of $1995 before recovering and closing above $2000 per ounce.

As of 5:20 PM EST gold futures basis the most active June contract is currently up $15.20 and fixed at $2019. Today’s gain is partially the result of dollar weakness, but the main component is market participants factoring in a positive CPI report revealing a strong decline in inflation year-over-year. A strong decline in the CPI would provide the Federal Reserve with data suggesting that inflation continues to decline which is necessary for them to pivot from an extremely hawkish monetary policy of rate hikes at each FOMC meeting to pausing rate hikes at subsequent FOMC meetings after May. Currently, it is widely anticipated that the Federal Reserve will raise rates in May by ¼%.

Economic predictions and forecasts expect that the inflation rate will decline from 6% to 5.2% YoY. However, the predictions also expect that the core inflation rate will increase by 0.1% from 5.5% to 5.6%. The Federal Reserve focuses on the core inflation numbers which exclude food and energy costs.

Aside from inflationary numbers, bullish market sentiment for gold continues to grow as central banks continue their campaigns to buy gold. Recently central banks have been diversifying their holdings by boosting their reserves of gold bullion. Geopolitical tensions continue to rise on multiple fronts. The war in Ukraine continues unchecked, with Russia escalating its brutal military campaign. 

China has made bold moves as it began military exercises focusing on Taiwan. The Chinese military recently sent dozens of aircraft across the Taiwan Strait median line. This occurred a few hours after China announced the beginning of three days of drills around Taiwan in response to the island's President, Tsai Ing-wen, visiting the U.S. and meeting the House speaker.

 North Korea continues to escalate its nuclear capabilities. The Associated Press today reported that “North Korean leader Kim Jong Un vowed to enhance his nuclear arsenal in more “practical and offensive” ways as he met with senior military officials to discuss the country’s war preparations in the face of his rivals’ “frantic” military exercises, state media said Tuesday.”

So, while, tomorrow’s report on inflation is exceedingly important but only one component that makes up the current bullish market sentiment for gold. This makes it likely that if tomorrow’s report comes in as predicted at 5.2% it would certainly influence the Federal Reserve’s upcoming decision to begin a period of pausing rate hikes sooner than later which would bring more bullish sentiment into gold.

Wishing you as always good trading,

Gary S. Wagner - Executive Producer