Gold goes with inflation! J&J vaccine withdrawal triggers risk aversion demand! Whether the upward trend can resume depends on this level!

Gold rebounded from its lows on Tuesday as rising U.S. inflation data boosted the metal’s appeal as an inflation hedge and weighed on the dollar. Spot gold was up 0.63 percent at $1,743.68 an ounce.

U.S. consumer prices rose at their fastest pace in more than 8 1/2 years in March, ushering in what most economists expected to be a brief period of inflation. The consumer price index rose 0.6 per cent in March, following a 0.4 per cent rise in February and above consensus expectations of 0.5 per cent.

The dollar fell to a three-week low after the data, making gold more attractive to holders of other currencies, and 10-year U.S. Treasury yields also closed lower. Economists and market analysts noted that rising inflationary pressures would help alleviate some of the selling pressure in the gold market, as nominal bond yields have risen sharply since the start of the year. Market analysts note that higher inflationary pressures mean real interest rates will remain historically low.

“We need to see some level of inflation to push gold higher, and the CPI data this morning showed that,” said Bob Haberkorn, senior market strategist at RJO Futures. He added that gold was further supported by a weaker dollar and falling yields. Haberkorn added that a close above $1,750 would support gold’s attempt to return to the $1,800 level.

Jason Teed, co-portfolio manager of the Gold Bullion Strategy Fund in New York, said inflation was “slightly higher than expected, indicating that the U.S. economy is warming up a little more than expected,” noting that inflation pressures are mainly coming from rising gasoline prices and that core inflation has been moderate. “These changes are largely considered by economists to be temporary and the Fed will take an unadjusted stance,” Teed said. Overall, “gold reacted positively to the news, but the short-term movements in gold prices do not reflect long-term trends,” he said.

Analysts said fears further supported gold’s safety after U.S. health officials recommended suspending the use of Johnson & Johnson’s vaccine. J&J has suspended use of the vaccine in nearly 20 states and delayed deliveries in Europe after six cases of blood clots in people receiving it in the US.

Technically, the price downtrend on the daily chart has stalled and more price gains in the near term will confirm the bullish double-bottom reversal pattern, which will be another chart clue for the market bottom to form. The bulls’ next upside price target is solid resistance at $1,800.00. The bears’ next downward near-term technical breakout target is to take the price below solid technical support at $1,700.00. See the first resistance at $1750, then last week’s high at $1755. The first support level is seen at $1,730.00, then at last week’s low of $1,728. The first resistance is seen at this week’s high of $1,748, then $1,750. The first level of support is seen at the overnight market low of $1,723.5, followed by last week’s low of $1,728.

Looking ahead, TD Securities wrote in a note that as the world begins to emerge from the COVID-19 crisis, the scope for gold purchases by central banks is likely to expand significantly, given the large increase in sovereign debt and the rapid growth in the money supply of reserve currency countries.

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