Gold Price Forecast: XAU/USD remains confined within two key averages, awaits US CPI
- Gold price is licking its wounds after hitting three-week lows of $1,976 on Monday.
- US Dollar holds the fort amid geopolitical risks, supportive US Treasury bond yields.
- Gold price awaits the US CPI data while ranging between two key daily averages, with a bearish RSI.
Gold price is catching a breather in the Asian session on Tuesday, following two straight days of decline. Gold traders now look forward to the all-important United States (US) Consumer Price Index (CPI) inflation data for a fresh directional impetus. The US CPI data is set to tone for the week ahead, with the next focus on the US Federal Reserve (Fed) interest rate decision.
Gold price: All eyes on the US inflation data
The US CPI is forecast to rise at an annual pace of 3.1% in November, as against the previous increase of 3.2%. The Core CPI is seen steadying at 4.0% YoY in the reported period. On a monthly basis, the headline US CPI inflation is likely to rise to 0.1% while the Core figure is set to rise 0.3% in November vs. 0.2% seen in October.
A hotter-than-expected US CPI data is expected to infuse fresh buying interest around the US Dollar and the US Treasury bond yields, as it would imply that the Fed could keep interest rates higher for longer to tame inflation, pushing back against market expectations of a rate cut as early as March.
However, a sharp slowdown in the pace of US CPI acceleration could bolster Fed rate cut bets, weighing heavily on the US Dollar alongside the US bond yields. Therefore, the Gold price will remain at the mercy of the US Dollar dynamics and yield reaction to the inflation data for fresh trading incentives.
That said, the Gold price reaction to the US CPI data could be soon reversed, as traders resort to repositioning ahead of Wednesday’s Federal Reserve policy announcements.
In the lead-up to the US CPI showdown, the US Dollar Index is consolidating near three-week highs, as the US Treasury bond yields stay supportive amid increased hopes of a US economic soft-landing. Gold price is attempting a tepid recovery from three-week troughs but remains below the $1,990 barrier, as of writing.
Meanwhile, receding bets of a March Fed rate cut are also behind the underlying strength in the Greenback, especially after the strong-than-expected US Nonfarm Payrolls (NFP) print. Markets are now pricing in a 45% chance of a rate cut in March compared with 57% a week earlier, according to CME FedWatch tool. Markets though have priced in an 80% chance of a rate cut in May.
Gold price technical analysis: Daily chart
As observed on the daily chart, Gold price closed Monday below the day Simple Moving Average (SMA) at $2,006, following a breakdown from the ascending trendline support of $2,024 on Friday.
The 14-day Relative Strength Index (RSI) indicator is trading listless, still below the 50 level, suggesting that any uptick in Gold price is likely to be short-lived.
The immediate support is seen near the $1,965 area, the intersection of the November 20 low and the upward-pointing 50-day SMA.
If Gold sellers manage to find a strong foothold below the latter, the flattish 200-day SMA at $1,952 will come into play. Further south, the 100-day SMA at $1,941 could be a tough nut to crack for Gold sellers.
On the other hand, any recovery needs acceptance above the 21-day SMA at $2,006 on a daily candlestick closing basis. Gold buyers will then aim for the November 27 high of $2,018 en route to the $2,040 supply zone.
Gold FAQs
Why do people invest in Gold?
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Who buys the most Gold?
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
How is Gold correlated with other assets?
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
What does the price of Gold depend on?
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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Author
Dhwani Mehta
FXStreet
Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.
