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US CPI hits 1 year high but Gold spikes higher on Syria

Summary:

  • March CPI hits 1 year high at 2.4% Y/Y (2.4% expected) but M/M -0.1%
  • Core Y/Y reading also gains (2.1% vs 1.8% prior)
  • Gold spikes above 1350 to 2-week high

Despite the year-on-year reading for US CPI rising to its highest level in a year, the US dollar has failed to rise with Gold spiking to its highest level in over a fortnight. The reason for the bid in the precious metal is likely some inflammatory remarks from US president Trump on Twitter regarding Russia and the recent chemical attack in Syria. 

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 Trump took to Twitter to threaten Russia with a missile strike in Syria. Source: Twitter

Returning to the inflation data, even though hitting a 1-year high may seem as a positive for the US dollar (and negative for Gold) the increase in the Y/Y reading was as expected and given drop in M/M terms it is actually a fairly neutral reading. The March CPI Y/Y came in at 2.4% vs 2.4% expected, rising from a prior reading of 2.2%. The core reading rose above 2% as expected to 2.1% from 1.8% previously but again this isn’t really a positive surprise. 

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 Both the CPI and core CPI rose in Y/Y terms as expected. Source: XTB Macrobond

 One negative shock came in the M/M reading which was expected to come in flat but actually showed -0.1% after +0.2% prior. Also if we look back to Tuesday’s PPI release we can see that expectations for today may have been raised by the PPI beating forecasts, so overall if anything you could say that today’s print is mildly negative for the US dollar and supportive of Gold.  

Looking at the market reaction Gold has broken above the 1350 handle to trade at its highest level since late February in the past hour, but if truth be told the majority of this latest push occurred before the data was released. Price has risen by more than $10 today after breaking above 1342.50 with the move gaining momentum with the Trump tweets. 

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 Gold has moved back above 1350 and is looking to continue higher after the CPI release. Source: xStation

The market is now testing the longer term range for Gold on the upside with price rising close to its highest level of 2018. Resistance may be found at 1357, 1365.50 and 1375 (July 2016 high) but a break above all of these would be deemed a major bullish event and could lead to a large move higher. As for support, 1342.50 is the first level to keep an eye on should price pullback then 1325 and the bottom of the recent range at 1306 a key longer term level.   

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 Gold is approaching last month’s high at 1357 and is probing the upper bounds of its recent range. Source: xStation

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