Gold may retest its yearly high on the back of weak US inflation data

The gold price is extending its previous rally above the $2,010 level early Wednesday. As markets remain cautiously optimistic ahead of the all-important US Consumer Price Index data. And the Minutes of the US Federal Reserve (Fed) March meeting.

The US dollar falls as a result of dovish Federal Reserve bets on soft US Consumer Price Index data.

The Easter holiday, full markets reopened on Tuesday. However, this did not cheer the US Dollar (USD) bulls. As the Greenback reversed the previous week’s recovery and began to fall. Tracking the decline in US Treasury bond yields. Investors are adjusting their positions in preparation for the high-impact economic events from the United States scheduled for midweek.

On Good Friday, the US Dollar surged after a strong US labor market report raised the odds of a 25-basis point increase. May The Federal Reserve raised interest rates to 71%. With soft inflation data expected on Wednesday. Markets are now pricing in a 67% chance of a quarter-point rate increase next month. The resurgence of the Federal Reserve’s dovish interest rate bets weighs heavily on the US Dollar, bode well for non-interest-bearing and USD-denominated gold prices.

Gold is poised to challenge the $2,032 barrier.

Economists expect the US Consumer Price Index to fall sharply to 5.2% YoY in March, down from 6.0% previously. While the monthly headline figure is expected to be slightly lower at 0.3% in the reported month. In the meantime, the annualized Core Consumer Price Index is expected to rise from 5.5% to 5.6% in March.

In March, the Core CPI MoM is expected to be 0.4%, down from 0.5% in February. Softer-than-expected headline numbers, combined with a negative surprise in the annualized Core CPI clip, could reinforce expectations of a Federal Reserve pause as soon as next month. While reintroducing Fed rate cuts bets for this year. The Fed’s dovish outlook could spark a new decline in US Treasury bond yields across the curve, slamming the US Dollar bulls. As a result, the gold price may extend its recent rally to test the yearly high of $2,032.

In the event of a stronger-than-expected US inflation report. The Fed will increase rates by 25 basis points in May while leaving the door open for another 25-basis point increase in June. Hawkish Fed bets could spark a new wave of risk aversion. Reviving the US Dollar’s appeal. as a safe haven at the expense of the gold price.

Fears of a US recession may resurface in the wake of hot US inflation data. Especially after the International Monetary Fund (IMF) revised global real GDP growth for 2023 to 2.8% from 2.9% in January’s report.

The Fed Minutes will also be scrutinized for the future rate path discussed by board members at the March policy meeting. Any surprises in the Minutes could also cause price volatility in gold.

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