- Gold price falls sharply as Fed policymakers maintain a hawkish narrative.
- The US Dollar strengthens as market expectations for early Fed rate cuts ease.
- Investors await the US core PCE inflation data for fresh guidance.
Gold prices are facing downward pressure during Wednesday’s European session as Federal Reserve (Fed) policymakers express no inclination to reduce interest rates in the first half of 2024. The prospect of higher interest rates is unfavorable for Gold, a non-yielding asset, as it raises the opportunity cost of holding the precious metal.
Investors are eagerly awaiting fresh signals on the timing of potential rate cuts, with focus shifting to the release of the United States core Personal Consumption Expenditure price index (PCE) data for January on Thursday. If the underlying inflation data proves to be more persistent than anticipated, market expectations for rate cuts may diminish, leading to a potential decline in Gold prices.
Despite the release of disappointing US Durable Goods Orders data for January on Tuesday, which showed a 6.1% decrease in fresh orders compared to the expected decline of 4.5%, Gold prices failed to see a substantial boost. The weak demand for durable goods hints at a gloomy outlook for consumer spending, contributing to the overall narrative of Gold prices coming under pressure.
Daily Digest Market Movers: Gold price retreats while US Dollar strengthens
Gold prices are trending lower, dipping below the $2,030 mark, while the US Dollar strengthens ahead of the release of the United States core PCE price index data for January, scheduled for Thursday. This key inflation data will offer insights into when the Federal Reserve might consider adopting a more dovish stance in its monetary policy.
Market expectations anticipate a 0.4% month-on-month growth in the core PCE price index for January, compared to a 0.2% increase in December. Annual forecasts suggest a slight deceleration in the underlying inflation data to 2.8%, down from 2.9% in December. Persistent price pressures could provide the Federal Reserve with grounds to argue for maintaining restrictive interest rates in the first half of 2024.
Currently, the consensus among Fed policymakers aligns with market expectations, indicating no urgency to implement rate cuts. According to the CME FedWatch tool, interest rates are predicted to remain steady in the 5.25%-5.50% range for the March and May policy meetings. Traders assign a 50% probability of a 25 basis points rate cut during the June meeting.
Federal Reserve Governor Michelle Bowman echoed the sentiment of keeping interest rates stable, emphasizing that premature rate cuts could hinder progress in inflation easing towards the 2% target or reignite price pressures. Bowman highlighted strong inflation readings in January and a tight labor market, suggesting a slowdown in achieving the 2% inflation goal.
Meanwhile, the trajectory of the US Dollar will be influenced by the second estimate of Q4 Gross Domestic Product (GDP), set to be published at 13:30 GMT on Wednesday. Expectations are for the Q4 annualized GDP to remain unchanged at 3.3%. The US Dollar Index (DXY), reflecting the Greenback’s value against major currencies, has surged above 104.00 amid increased appeal for safe-haven assets due to uncertainty in US economic data.
Technical Analysis: Gold price falls after failing to recapture $2,040
The decline in Gold prices comes on the heels of unsuccessful attempts to breach the upper boundary of the Symmetrical Triangle pattern. This technical formation is delineated by the downward trendline originating from the December 28 high at $2,088 and the upward-sloping line stemming from the December 13 low at $1,973.
The Symmetrical Triangle pattern implies an impending breakout, with equal probabilities for an upward or downward move. However, the scales slightly tip in favor of a continuation in the direction of the pre-triangle trend, which, in this instance, suggests a potential upward movement. A clear breach beyond the boundaries of the triangle, whether above or below, would signal the initiation of a breakout.
The 14-period Relative Strength Index (RSI) hovers within the 40.00-60.00 range, indicating a sense of indecision among investors. This neutral RSI zone suggests that market participants are grappling with conflicting signals, further highlighting the uncertainty surrounding Gold’s near-term price direction.
