Gold Falls, Hot CPI Lifts Yields and Dollar
Gold prices (XAU/USD) fell more than 1% on Tuesday (May 12) after hotter-than-expected US inflation data prompted the market to cut expectations for a Fed rate cut in 2026. XAU/USD traded at US$4,713, after briefly reaching a daily high of US$4,773.
Rising energy-driven inflation put pressure on gold through the yield and dollar channels. US April CPI rose 3.8% YoY (from 3.3%), beating the 3.7% estimate, while core CPI rose 2.8% YoY, also above the 2.7% estimate. Correspondingly, the DXY strengthened 0.48% and hovered near a five-day high of around 98.37.
The strengthening dollar and rising yields are a headwind for non-yielding assets like gold. The 10-year US Treasury yield rose 4.5 bps to 4.457%, while the market began pricing in a nearly 30% probability of an interest rate hike by the end of 2026, according to Prime Terminal.
On the geopolitical front, the US and Iran are said to have reached an impasse regarding an end to the conflict. US President Donald Trump described Iran's response to a peace proposal as "totally unacceptable" and requested a National Security Council meeting to evaluate options, while Axios reported several scenarios, including a possible resumption of military activity. This sentiment also boosted oil prices, with WTI rising more than 3.20% to US$101.50, reinforcing the inflation bias and supporting the dollar.
On the policy front, the US Senate confirmed Kevin Warsh—a Trump nominee—to the Fed board, with a vote on his confirmation as Fed Chair scheduled for Wednesday, two days before Jerome Powell's final day as chairman. Market focus will next be on the continuation of core inflation pressures, the direction of yields and the DXY, oil dynamics, and developments in US-Iran negotiations that could potentially alter the risk profile. (arl)*
Source: Newsmaker.id
