Author: Sir Amar – Technical Analyst

The US CPI for May was a nightmare for risk markets as the headline was well above consensus. Inflation has peaked again critically, it’s across the board. Only educational achievements were negative at 0.1%. Fed policy is affecting financial conditions: the housing market is slowing in terms of mortgages issued and declining sales volume, but this is not yet impacting the inflation data, where the housing component is still up 0.8%. In any case, rate hike by the Fed this Wednesday was a given, so this data has no immediate policy implications. Instead, it cements September’s 50bp advance.

Gold prices have turned vertically after failing to break the round resistance at $1880. The precious metal surged well above $1870 on Friday, attempting to clear above $1870 earlier in the Asian session but failing to break above $1880.00 led gold bulls lower. A drop in steel after inventory dispersion at opening is expected to bring more weakness over the counter. Gold prices are facing extreme selling pressure due to the increasing likelihood of a 75-basis point (bps) rate hike by the Federal Reserve. Increasing price pressure and bullish NFPs are likely to force the Fed to take extremely aggressive action.

On an hourly scale, gold prices sold off after forming bullish momentum near $1880, signaling a buying top followed by a bearish reversal. The precious metal remains above the moving average at $1852 but is expected to fall closer to the critical support at $1830. The Relative Strength Index (RSI) has moved from the bullish from 60 to 80 range to a 40 to 60 range, indicating an exhaustion in the uptrend. The precious metal saw some volatility following the release of the US CPI. Nonetheless, colossal buying on the downside frequently occurred as investors rushed to hedge both inflation and recession risks on the belief that gold offered a safe haven against the stagflation risks clouding the horizon even as the US Dollar rose.