XAU/USD: Gold Prices Retreat 1.3% as Investors Brace for Inflation Cooldown in April

Consumer prices for April are expected to mark a slight decline. Any surprises may cause sharp volatility across markets.

• Gold prices XAUUSD pared back some of their recent gains as markets broadly prepared for a big data dump on Wednesday. The precious metal gave up about 1.3% to kick off this week’s deals, moving from a Monday high of $2,365 to a daily low of $2,331 per troy ounce. Early on Tuesday, however, gold bugs have buoyed the commodity higher to levels near $2,345.
• The dip in gold prices comes ahead of Wednesday’s consumer price index deport, or simply inflation data. The reading will shed light on the Federal Reserve’s interest rate timeline. If inflation does indeed meet expectations for a 3.4% increase in April — down from 3.5% in March — it may give investors reprieve and peace of mind. But if the printout is higher than expected, markets may panic over what the Fed will do next.
• Lower inflation is part of the Fed’s master plan. The US central bank has a mandate to keep prices in check. And that’s on their wish list for this year, right above lowering interest rates. Ideally, one should follow the other — no drop in inflation likely means no drop in interest rates. Where’s gold in all that? Gold is a non-yielding asset, meaning that investors may choose to hold the US dollar in a high-yield environment where interest rates are elevated.