Contents
The Gold price (XAU/USD) is grappling with a persistent challenge as it hovers below the psychologically significant $2,000 mark, marking a two-month low during the early European trading session on Monday. This struggle is underscored by the stronger-than-anticipated US consumer inflation report released recently, which has reinforced market expectations regarding the Federal Reserve’s stance on interest rates. Despite facing headwinds, a combination of factors is offering some support to the precious metal, albeit with limitations on its downside potential.
Highlights:
- Gold price hits a fresh two-month low amid bets that the Fed will keep rates higher for longer.
- The expectations were reaffirmed by the stronger-than-expected US CPI released on Tuesday.
- A softer risk tone lends support to the safe-haven XAU/USD and helps limit any further losses.
US Inflation Report Influences Gold Price Dynamics
The release of the US inflation data has been pivotal in shaping the current trajectory of the Gold price. The report, indicating a 0.3% rise in the headline US Consumer Price Index (CPI) for January and a year-on-year rate of 3.1%, has surpassed expectations, tempering prospects of an early interest rate cut by the Federal Reserve. Additionally, the Core CPI, excluding volatile food and energy prices, also exceeded consensus estimates, contributing to the narrative of a sustained inflationary environment.
Read more: January CPI Data Tests Stock and Gold Resilience
Market Expectations and Fed’s Monetary Policy Impact
Amidst the backdrop of robust US macroeconomic data, particularly concerning inflation, market sentiment regarding the Federal Reserve’s monetary policy stance has evolved. The prevailing sentiment suggests that the Fed is less likely to rush into rate cuts, given the persistently high consumer inflation. As evidenced by the CME Group’s FedWatch Tool, expectations for an April rate cut stand at just over 35%, indicating a shift towards a more conservative approach by the central bank. This has implications for both bond yields and the US Dollar’s performance, which in turn influences Gold price dynamics.
Technical Analysis and Price Forecast
A closer examination of technical indicators reveals potential trends in the Gold price movement. With the current downward pressure, a breach below the 100-day Simple Moving Average (SMA) support at the $1,990-1,988 region could signal further downside. The critical level to watch is the 200-day SMA support near $1,965, a break below which may trigger intensified bearish sentiment. Intermediate support zones lie at $1,952-1,950 and the November 2023 low of $1,932-1,931. Conversely, a rebound beyond $2,000 faces resistance at the $2,011-2,012 range, with potential upside towards the 50-day SMA around $2,030.
Source: Tradingcompass.io
Conclusion
In conclusion, the Gold price continues to navigate a complex landscape shaped by US inflation data and evolving market expectations regarding the Federal Reserve’s monetary policy. While the recent uptick in consumer inflation has tempered rate cut bets, challenges persist for the non-yielding precious metal. Technical indicators suggest potential downside risks, with key support and resistance levels guiding short-term price movements. As investors assess the broader economic environment and central bank policies, the trajectory of the Gold price remains subject to fluctuation, influenced by a multitude of factors both domestically and globally.
