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XAU/USD

Tuesday saw a rally in gold following the unexpected decline in US CPI data. Rekindled tensions between the US and Iran raise oil prices and rekindle worries about inflation brought on by energy. Technically, the RSI is still below the neutral line, indicating that gold is still under pressure. After lower-than-expected US inflation statistics reduced prospects of a near-term Federal Reserve (Fed) interest rate hike, gold (XAU/USD) saw a significant rally on Tuesday, erasing losses from the previous day. After hitting a two-week low of $3,983 earlier in the Asian session, XAU/USD is currently trading at about $4,080, up about 2% on the day. The Consumer Price Index (CPI) dropped 0.4% month over month in June, which was much less than the 0.5% increase in May and far below the prediction of a 0.1% reduction. Annual inflation decreased from 4.2% to 3.5%, which was also less than the projected 3.8%. Expectations for a 0.2% gain were not met in June, as the core CPI—which does not include volatile food and energy prices—was flat. The annual core rate dropped from 2.9% to 2.6%, which was less than the projected 2.8%. Following the report, traders reduced their bets on Fed rate hikes, which put more selling pressure on the US dollar (USD) and US Treasury rates. The likelihood of a rate rise in July dropped to 16% from 40%, while the likelihood of a rate increase in September decreased to 60% from 74%, according to the CME FedWatch

has some breathing room thanks to the modest CPI report, but the most recent escalation between the US and Iran has brought focus back to the inflationary effects of rising oil prices. The possibility of a Fed rate rise later this year is maintained by rising oil prices, which reduces the likelihood of a more robust gold rebound.