XAUUSD pressuring the bears near daily resistance ahead of ECB

The gold price (XAUUSD) is striving to rise and is approaching the recent highs set on Wednesday at $1,980. The US dollar is behind on Thursday after dipping overnight as US rates stopped their advance, providing some comfort to the FX market as investors await the European Central Bank’s decision.

Another round of US inflation figures arrived on Wednesday. Producer prices, generally known as the Producer Price Index (PPI), increased more pressure on the Federal Reserve to raise interest rates in March, rising by 11.2 percent year on year, greater than predicted and the most substantial increase since 2010. Simultaneously, the so-called core PPI, which excludes volatile goods, grew 9.4 percent year on year, above the 8.4 percent forecast.

Now that the US inflation report is in the rearview mirror, the scorching inflation that has surrounded the US economy strengthens the argument for the Federal Reserve to boost interest rates swiftly. Fed officials have indicated that a 50-bps rate rise is possible at the May meeting, while STIRs predicts a 0.50 percent increase in the Federal Funds Rate (FFR).

Fed Governor Christopher Waller (voter in 2022) crossed the lines late in the US session. Waller stated that the evidence justifies 50 basis point increases, and that he prefers to front-load substantial rises at the May meeting, with maybe more in June and July. He added that he hopes to be above neutral by the end of the year.
Along with dropping US Treasury rates, geopolitics is another reason why investors are purchasing gold, with the latest developments on the Russo-Ukraine war indicating that peace is still a long way off.

Russia would consider US and NATO trucks moving weapons on Ukrainian soil to be acceptable military targets, Russia’s Deputy Foreign Minister warned on Wednesday, escalating tensions with the West. The new volley of Kremlin vitriol comes after Putin said on Tuesday that peace negotiations with Ukraine had reached a stalemate.

Putin, on the other hand, pledged that Russia will achieve all of its “noble” goals in Ukraine. “We have returned to a dead end position for us,” Putin said during a press conference at the Vostochny Cosmo drome, 3,450 miles (5,550 km) east of Moscow. “We are not going to be isolated,” Putin stressed. “It is difficult in the present world to severely isolate anyone, let alone such a big country as Russia.” Meanwhile, TD Securities analysts explained that gold has benefited from large-scale Chinese purchases, “as our tracking of the aggregate net positions held by Shanghai’s largest traders long and short suggests that this cohort has increased their gold length to its highest levels in the past twelve months.”

Meanwhile, the analysts stated that “comex shorts have virtually been wiped off” and “ETF inflows have slowed as the fear trade diminishes.” However, a Fed announcing its intention to attain neutrality by the end of the year and launch an aggressive QT regime does not exactly stand out as a macro backdrop in which gold inflows are projected to increase.”

“As a result, either gold bugs are dozing off towards a substantial drop as inflows diminish with increased short positioning, or price resilience is a canary in the coal mine suggesting a changing macro environment on the horizon.”