(Kitco News) – Gold’s pullback following yesterday’s hot CPI print is likely to be short-lived, as the uptrend remains in place and traders seem eager to treat retracements as buying opportunities, according to Fawad Razaqzada, Financial Market Analyst at StoneX Group.
“Following last week’s sharp 4.6% gains to repeated all-time highs, gold investors were not in a hurry to pile in and push the metal further higher at the start of this week,” Razaqzada wrote in an article on City Index. “There was always the possibility of a rebound in bond yields and the dollar, given the importance of inflation data and following a mixed jobs report on Friday.”
When Tuesday’s U.S. CPI report for February showed both headline and core inflation was hotter than expected, it triggered a predictable rally in the dollar and a concurrent sell-off in government bonds. “As yields rose, the opportunity cost of holding gold increased, as too did the selling pressure,” he said. “Still, the weakness was not too significant in the grand scheme of things, with the metal shedding some $25 worth of gains.”
Razaqzada wrote that even if gold prices were to slide further in the near term, “this wouldn’t necessarily be a sign that the metal has topped.”
“In fact, many investors who missed the opportunity to buy gold when it started to rally last month, will be waiting to pick up short-term dips,” he said. “So, more gains could well be on the way soon.”
He noted that equity markets quickly “shrugged off the strong CPI print,” and he believes precious metals investors are likely to do the same. “So, there is a chance that we may see gold and silver stage a comeback either later in the day or week, for as long as we don’t see too much technical damage,” he said.
“With the market remaining confident of a rate cut in June, despite a slightly stronger CPI report, gold’s weakness should be short-lived.”
Turning to the technical picture, Razaqzada said that while “there is the potential for gold to weaken a bit more, key short-term support is now not too far around $2146, which was the high made back in December.”
“Below this level, $2100 is the next round level to watch, followed by long-term support, around the $2081/88 area, which was once strong resistance,” he said. “Therefore, even if gold were to weaken more in the short-term, this wouldn’t necessarily be a sign that gold has topped. In fact, many investors who missed the opportunity to buy gold when it started to rally last month, will be waiting to pick up short-term dips.”
Razaqzada’s prediction appears to be playing out, as spot gold climbed steadily off its post-CPI lows on Wednesday, reaching all the way back to the same level just below $2,180 shortly after 1 pm EST that it was trading at prior to the disappointing inflation data.
Spot gold last traded at $2,173.72 per ounce at the time of writing, for a gain of 0.69% on the day.
