Gold was a touch lower this morning, while the US dollar and Treasury yields were little-changed as investors sat on their hands ahead of the latest US CPI update. Gold was on course to break its run of nine days of back-to-back gains. A look at the chart showed no real pullback since this rally began in mid-February, and then really took off at the beginning of this month when gold surged above $2,050. So, chart-wise gold was looking a touch overextended.
There were signs of nervousness ahead of the inflation number. It felt as if it could make or break just about every risk asset out there. Undoubtedly this was an exaggeration. After all, how bad/good could it be? But investors were mindful of the volatility which followed last month’s disappointing data.

And they were right to be so. Headline year-on-year CPI ticked up to +3.2% in February from +3.1% previously. This provided the catalyst for a sharp rally in the dollar, and a correspondingly sharp sell-off in precious metals (after an initial jump). This has helped to blow some froth off a bubbly market, but can we expect more downside? Gold does seem resilient given the dollar’s rally. But if I were long gold now, I think I’d like to see more of a pull-back and consolidation as that would help build a solid base for further gains. Otherwise, we can continue to rally, but once the correction finally comes, it’s likely to be a humdinger.
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