Gold Prices are somewhat up early Friday due to concerns on increasing inflation.

Thursday’s U.S. producer price index report for April came in at up 0.6% from the month of March, which is double of the forecast 0.3%. The April CPI was up over 6%, year-on-year. The PPI report followed a hot consumer price index report issued on Wednesday. These are the evidences that shows that the U.S. economy and even other major global economies will have to battle unwanted inflationary pressures at some point down the road.

This Higher inflation would typically create bullish market sentiment for the precious yellow metal. Wednesday’s report by the Bureau of Labor Statistics indicated that inflation rose by 0.8% in April, which takes the annual inflation rate to 4.2%, that is the highest level of inflation seen since 2008.

The primary reason behind the inflation is due to the massive increase in the cost of new and used cars and trucks.

As per the data,  cost of a new or used automobile or truck increased by approximately 10%. The main cause for such a dramatic increase in a short period of time was a supply issue based upon a shortage of microchips needed in automobile production.

This supply-chain issue will most likely be temporary in nature and hence it was viewed in a much different way. And  the other component was increase costs in food. That being said, there is also a supply-chain issue, but food costs could continue to maintain a higher price point for a longer period of time and have a sustained and systemic impact on the inflation rate.

Economists believe that the concern regarding rising inflation is legitimate and a reason for real concern.

XAU/USD 4 Hour Chart:

Support: 1813.2 (S1), 1801.0 (S2), 1793.2 (S3).

Resistance: 1833.3 (R1), 1841.0 (R2), 1853.3 (R3).

Increasing inflation raises concerns among the traders which is favorable for the yellow metal and we expect a bullish trend for XAU/USD.