Gold traded slightly higher near $4,720 in early Asian hours on Wednesday. Gains were limited after US inflation came in hotter than forecast, while traders awaited the US April Producer Price Index (PPI) report due later on Wednesday.
US CPI rose 3.8% year on year in April, up from 3.3% in March, and above the 3.7% estimate, the highest since May 2023. Month on month, headline CPI increased 0.6% versus 0.9% previously, in line with expectations.
Core Inflation And Fed Expectations
Core CPI, which excludes food and energy, rose 0.4% on the month and 2.8% year on year. After the data, the CME FedWatch tool put the chance of a Federal Reserve rate rise by year-end at about 30%, which can pressure non-yielding gold.
Markets also watched US-China diplomacy ahead of Donald Trump meeting Xi Jinping in Beijing on Thursday and Friday, Trump’s first China trip since 2017. Central banks added 1,136 tonnes of gold worth around $70 billion in 2022, the highest annual purchase on record, according to the World Gold Council.
Looking back to last year, we remember when a 3.8% CPI reading in April 2025 was seen as hot enough to spark talk of Federal Reserve rate hikes. Today, with gold hovering near $4,700, the landscape has changed considerably. Recent CPI data for April 2026 came in softer at 2.9%, suggesting that the inflationary pressures of 2025 are finally easing.
This shift in inflation has completely altered the interest rate outlook. While traders in 2025 were pricing in a chance of a rate hike, the CME FedWatch Tool now indicates an over 80% probability of a rate cut by September 2026. As a non-yielding asset, gold becomes more attractive as interest rates are poised to fall.
Geopolitics Central Banks And Gold Demand
Geopolitical factors also remain a key support for the metal. While the Trump-Xi meeting in 2025 eased some trade friction, we see persistent demand from central banks, which added a record 225 tonnes in the first quarter of 2026. This foundational buying from official institutions provides a strong floor for prices during any dips.
For derivative traders, this environment suggests that long-dated call options could offer value, capturing potential upside from a more dovish Fed. Implied volatility is still pricing in some uncertainty, but we believe the fundamental shift towards lower rates is the dominant trend. The key is to position for a sustained move higher rather than short-term spikes.
The inverse relationship between gold and the US Dollar is also critical to our view. The US Dollar Index (DXY) has recently broken below the 100 level for the first time since late 2024, reflecting the market’s anticipation of looser monetary policy. A weaker dollar makes gold cheaper for foreign buyers, providing a significant tailwind for prices.
