Gold price remains depressed near daily low as traders look to US CPI for fresh impetus


  • Gold price meets with some supply and snaps a nine-day winning streak to a record peak.
  • The downtick could be attributed to some profit-taking ahead of the crucial US CPI report.
  • Bets for a June Fed rate cut to keep the USD bulls on the defensive and should lend support.

Gold price (XAU/USD) comes under some selling pressure on Tuesday and maintains its offered tone below the $2,180 level through the early European. Traders opt to lighten their bullish bets amid extremely overbought conditions on the daily chart and ahead of the release of the latest US consumer inflation figuers. The crucial US CPI report will influence expectations about the Federal Reserve's (Fed) rate cut path and play a key role in determining the next leg of a directional move for the non-yielding yellow metal. 

In the meantime, a modest US Dollar (USD) uptick is seen undermining the Gold price, though bets that the Fed will start cutting interest rates in June and sliding US Treasury bond yields could lend some support. Apart from this, geopolitical tensions and expectations that the global economy could weaken in 2024 might limit the downside for the safe-haven metal. Hence, it will be prudent to wait for strong follow-through selling before confirming that the XAU/USD has topped out and positioning for deeper losses. 

Daily Digest Market Movers: Gold price is pressured by modest USD strength, downside seems limited

  • Some repositioning trade ahead of the crucial US consumer inflation figures exerts some pressure on the Gold price during the Asian session, though any meaningful corrective slide still seems elusive.
  • The crucial US CPI report will play a key role in influencing expectations about the timing and the pace of rate cuts by the Federal Reserve, which should provide a fresh impetus to the XAU/USD.
  • The headline CPI is anticipated to edge higher to 0.4% in February and the yearly rate is expected to hold steady at 3.1%, while the Core CPI is seen easing to the 3.7% YoY rate from 3.9% previous.
  • The mixed US monthly jobs report released on Friday boosted rate-cut bets and dragged the yield on the benchmark 10-year US government bond to a five-week low, closer to the 4.0% mark.
  • According to the CME group's FedWatch tool, traders are currently pricing in an around 70% chance of a rate cut by June, which might keep the USD bulls on the defensive and lends support to the metal.
  • A sticky inflation print, however, is going to be a little troublesome to the commodity, while a cooler CPI reading will boost bets for an early rate cut and trigger a fresh leg up for the Gold price.

Technical Analysis: Gold price bulls have the upper hand while above $2,144, or December 2023 swing high

From a technical perspective, the Relative Strength Index (RSI) on the daily chart is flashing extremely overbought conditions and prompting some profit-taking. The near-term bias, however, still favours bullish traders in the wake of last week's break through the previous record high, around the $2,144 area. The latter should now act as a key pivotal point, which if broken decisively could drag the Gold price towards the $2,125 intermediate support en route to the $2,100 round figure.

On the flip side, bulls might now wait for a move beyond the $2,200 mark, above which the XAU/USD will enter uncharted territory and build on its recent strong gains registered over the past month or so. Meanwhile, the technical setup makes it prudent to wait for some near-term consolidation or a modest pullback before positioning for an extension of the Gold price's recent blowout rally witnessed over the past two weeks or so.

 

Gold FAQs

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.

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.

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.

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.

Economic Indicator

United States Consumer Price Index ex Food & Energy (MoM)

Inflationary or deflationary tendencies are measured by periodically summing the prices of a basket of representative goods and services and presenting the data as the Consumer Price Index (CPI). CPI data is compiled on a monthly basis and released by the US Department of Labor Statistics. The MoM print compares the prices of goods in the reference month to the previous month.The CPI Ex Food & Energy excludes the so-called more volatile food and energy components to give a more accurate measurement of price pressures. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish.

Read more.

Next release: 03/12/2024 12:30:00 GMT

Frequency: Monthly

Source: US Bureau of Labor Statistics

Why it matters to traders

The US Federal Reserve has a dual mandate of maintaining price stability and maximum employment. According to such mandate, inflation should be at around 2% YoY and has become the weakest pillar of the central bank’s directive ever since the world suffered a pandemic, which extends to these days. Price pressures keep rising amid supply-chain issues and bottlenecks, with the Consumer Price Index (CPI) hanging at multi-decade highs. The Fed has already taken measures to tame inflation and is expected to maintain an aggressive stance in the foreseeable future.

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