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Gold price sits near daily top, lacks bullish conviction ahead of US CPI on Thursday

  • Gold price attracts some buyers on Tuesday, albeit struggles to capitalize on the move up.
  • A fall in consumer inflation expectations boosts Fed rate-cut bets and undermines the buck.
  • Elevated US bond yields and a positive risk tone cap gains ahead of the US CPI on Thursday.

Gold price (XAU/USD) catches fresh bids on Tuesday and moves away from a near three-week low, around the $2,017-2,016 area touched the previous day, albeit lacks follow-through. A fall in US Consumer Inflation Expectations boosts expectations for an imminent shift in the Federal Reserve's (Fed) policy stance, which, in turn, is seen as a key factor acting as a tailwind for the non-yielding yellow metal. 

That said, the upbeat US monthly jobs report released last Friday pointed to a still resilient labor market and gives the Fed to keep interest rates higher for longer. Moreover, hawkish comments by several Fed officials forced investors to scale back their expectations for a more aggressive policy easing, leading to a fresh leg up in the US Treasury bond yields. This lends support to the US Dollar (USD) and caps the Gold price. 

Apart from this, a stable performance around the equity markets turns out to be another factor holding back bulls from placing aggressive bets around the safe-haven XAU/USD. Investors also seem reluctant and prefer to wait for the release of the latest US consumer inflation figures, due on Thursday, for cues about the Fed's future policy decision, which will play a key role in determining the near-term trajectory for the Gold price. 

Daily Digest Market Movers: Gold price sticks to modest gains despite bearish fundamental backdrop

  • The New York Federal Reserve said in a report on Monday that US consumers' projection of inflation over the short run fell to the lowest level in nearly three years in December, which undermines the US Dollar and benefits the Gold price.
  • Inflation one year from now is expected to be at 3%, marking the lowest reading since January 2021, while inflation three years from now is seen at 2.6% and price pressures five years ahead were at 2.5% versus 2.7% in November.
  • The data reaffirms expectations for an imminent shift in the Federal Reserve's policy stance, though investors continue scaling back their expectations for more aggressive policy easing in the wake of a still-resilient US economy.
  • Atlanta Fed President Raphael Bostic noted that inflation has declined more than expected and that the US central bank still needs to give tight policy time to work on cooling off inflation. Bostic sees two 25 bps cuts by year-end 2024.
  • Fed Governor Michelle Bowman said that the current policy stance appears sufficiently restrictive and that inflation could fall further with the policy rate held steady for some time, though the upside inflation risks remain.
  • This raises uncertainty over the possibility of early interest rate cuts by the Fed, which assist the yield on the benchmark 10-year US government bond to hold steady above the 4.0% threshold and might cap the non-yielding yellow metal.
  • The market focus, meanwhile, remains glued to the US consumer inflation figures on Thursday, which should help determine the next leg of a directional move for the XAU/USD.

Technical Analysis: Gold price needs to move beyond $2,045 for bulls to seize near-term control

From a technical perspective, any subsequent move up is likely to confront some resistance near the $2,040 horizontal zone, above which the Gold price could aim to retest Friday's swing high, around the $2,063-2,064 region. The next relevant hurdle is pegged near the $2,077 area, which if cleared decisively will negate any near-term negative outlook and allow bulls to reclaim the $2,100 round figure.

On the flip side, the overnight swing low, around the $2,017-2016 region, now seems to protect the immediate downside ahead of the 50-day Simple Moving Average (SMA), currently near the $2,012-2,011 area. This is followed by the $2,000 psychological mark, below which the Gold price could accelerate the slide towards the $1,988-1,986 intermediate support en route to the December low, around the $1,973 area and the $1,962 confluence, comprising the 100- and the 200-day SMAs.

US Dollar price today

The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Canadian Dollar.

 USDEURGBPCADAUDJPYNZDCHF
USD -0.12%-0.10%-0.02%-0.09%-0.42%-0.13%-0.13%
EUR0.12% 0.02%0.10%0.00%-0.31%0.00%-0.05%
GBP0.09%-0.01% 0.08%-0.01%-0.33%-0.04%-0.04%
CAD0.01%-0.11%-0.09% -0.10%-0.42%-0.12%-0.12%
AUD0.09%-0.02%0.01%0.09% -0.32%-0.02%-0.05%
JPY0.42%0.30%0.33%0.41%0.32% 0.29%0.29%
NZD0.13%0.00%0.03%0.10%0.01%-0.31% -0.02%
CHF0.15%0.02%0.05%0.13%0.04%-0.28%0.01% 

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).

Economic Indicator

United States Consumer Price Index (YoY)

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 YoY reading compares the prices of goods in the reference month to the same month a year earlier.The CPI is a key indicator to measure inflation and changes in purchasing trends. 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: 01/11/2024 13:30:00 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.

Author

Haresh Menghani

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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