Gold Is Resilient: Prices Hit Session Highs Following Sharp Selloff
(Kitco News) - Gold investors should feel a little more confident as the yellow metal has proven resilient following a sharp selloff after U.S. inflation data shocked financial markets.
Wednesday morning has been volatile for the gold market, which is just off session highs, recovering from a $14 drop following mixed U.S. economic data from January; the Consumer Price Index showed inflation was hotter than expected but retail sales were weaker than expected.
April gold futures last traded at $1,345.60 an ounce, up more than 1% on the day. The gold market has been able to withstand higher 10-year bond yields, which continue to trade at a four-year high at 2.875%.
“While markets initially focused on inflation data, traders are starting to realize that because of the disappointing retail sales, nothing has changed,” said David Madden, market analyst at CMC Markets.
Madden added that gold is also benefiting from sober second thought on inflation. While the month-over-month change was stronger-than-expected, annual inflation was unchanged at 2.1%. Annual core inflation was also stable at 1.8% annually.
“Overall, inflation isn’t heading up, it's holding steady and I think it took time for markets to realize that,” said Madden.
Phillip Streible, senior market analyst at RJO Futures, said that gold suffered from indiscriminate selling following the data. However, he added that the market is benefiting from safe-haven flows because of the mixed economic signals.
Streible added that gold is benefiting from a struggling U.S. dollar.
“The U.S. Dollar Index is struggling to hold gains above 90 -- that is proving to be a strong resistance point -- and that is good for gold,” he said.
Jim Wyckoff, senior market analyst at Kitco.com said that gold is benefiting from technical momentum as increased volatility has added to gold’s safe-haven luster.
As gold prices have pushed above critical resistance at $1,334 an ounce, both Streible and Madden said that gold has the momentum to move higher. Both analysts are looking for the yellow metal to push above $1,350 an ounce eventually.
“If we get above $1,350 then we are going to test new highs,” said Streible. “You shouldn’t ignore how resilient gold has been lately.”