- Gold price tumbles as the US inflation turns out sticky.
- Market expectations for the Fed reducing interest rates in June could be impacted.
- US annual headline inflation accelerated to 3.2%, and core CPI grew by 3.8%.
Gold prices (XAU/USD) are under significant selling pressure following the release of steadfast Consumer Price Index (CPI) data by the United States Bureau of Labor Statistics (BLS) during the early New York session on Tuesday. The robust CPI figures have tempered market expectations for Federal Reserve (Fed) rate cuts at the upcoming June policy meeting. This persistence in price pressures has elevated the opportunity cost of holding non-yielding assets like Gold.
The unexpectedly high inflation report has spurred an uptick in yields on interest-bearing bonds, with 10-year US Treasury yields staging a notable rebound to 4.15%. Concurrently, the US Dollar Index (DXY), which tracks the Greenback’s performance against six major currencies, has surged to 103.20.
The USD index has broken out of Monday’s trading range to the upside, propelled by the resilience of inflation data, which is anticipated to alleviate pressure on Fed policymakers to hastily implement interest rate cuts. Looking ahead, a steadfast inflation report is poised to enhance the attractiveness of the US Dollar in the long term, enabling the Fed to maintain higher interest rates for an extended duration.
Daily digest market movers: Gold price weakens after sticky US Inflation data
Gold prices plummeted as United States consumer price inflation data stubbornly exceeded expectations. The monthly headline CPI matched forecasts with a 0.4% rise, following a 0.3% increase in January. Similarly, the monthly core CPI, excluding volatile food and energy prices, surged by 0.4%, surpassing investor expectations of a 0.2% uptick. Annual headline inflation climbed to 3.2%, outstripping both forecasts and the previous reading of 3.1%. Meanwhile, core CPI accelerated to 3.8%, slightly below expectations but lower than the previous 3.9%.
The hotter-than-anticipated inflation figures are likely to dissuade Federal Reserve policymakers from hastily implementing rate cuts. It’s expected that Fed policymakers will reiterate the ongoing challenge in curbing inflation. Consequently, uncertainty surrounding interest rate cuts in the first half of the year may deepen as policymakers consider maintaining higher interest rates.
In his recent Congressional testimony, Fed Chair Jerome Powell emphasized the need for sustained inflation returning to the 2% target before considering rate adjustments. Although Powell suggested the central bank is nearing that conviction, market expectations for a rate cut in the June meeting were firm prior to the release of the US CPI data. Despite labor market conditions not being excessively tight, the February US Nonfarm Payrolls (NFP) report revealed slower wage growth and a higher Unemployment Rate, though hiring remains robust. According to the CME FedWatch tool, there is a 72% probability of a Fed rate cut in June.
Technical Analysis: Gold price falls to $2,160
Following sticky US inflation data, gold prices have broken below the tight three-day range, slipping from $2,170 to the all-time highs of $2,195. This drop halts the nine-day winning streak of gold prices, contributing to uncertainty regarding Federal Reserve rate cut expectations. Notably, the divergence between the 20-day Exponential Moving Average (EMA) at $2,097 and the gold price is diminishing. This typically precedes a mean-reversion move, which could manifest as either a price or time correction.
On the downside, key support levels are anticipated at the December 4 high near $2,145 and the December 28 high at $2,088.
The 14-period Relative Strength Index (RSI) has surged into overbought territory, reaching 84.50, suggesting an imminent correction.
