- Gold prices are striving to find stability, despite lingering uncertainty in the near-term outlook.
- The persistence of high US inflation figures for February has heightened uncertainty regarding potential Federal Reserve rate cuts in June.
- Investor attention will now turn towards the release of US Producer Price Index (PPI) and Retail Sales data for February.
In Wednesday’s early New York session, the price of gold (XAU/USD) shows marginal gains, but its near-term trajectory remains uncertain as investors have tempered their expectations of Federal Reserve (Fed) rate cuts in June. Following the release of the United States Consumer Price Index (CPI) data for February, which revealed unexpectedly high figures, gold experienced its second-largest single-day decline in a month.
Both the annual headline and core CPI expanded at a faster rate than anticipated, largely driven by elevated prices in gasoline and shelter. This surge in inflation has heightened concerns among market participants, leading to a reduction in expectations for the Fed to implement interest rate cuts in the upcoming June policy meeting. As a result, the opportunity cost of holding non-yielding assets like gold has increased. Moreover, a growing sentiment that the Fed may delay rate cuts beyond June could further weigh on the price of gold.
Simultaneously, the 10-year US Treasury yields, influenced positively by the Fed’s hawkish policy stance, have surged to 4.16% as grappling with persistent inflationary pressures proves to be challenging. Conversely, the US Dollar Index (DXY), which gauges the strength of the US Dollar against six major currencies, declines to 102.80.
Daily digest market movers: Gold, US yields are positive while US Dollar drops
- Gold price has recently found a temporary support level near $2,160 following a notable decline from its all-time highs at $2,195. The unexpectedly persistent inflation figures in the United States for February have introduced uncertainties regarding the Federal Reserve’s potential interest rate adjustments in the June policy meeting.
- Notably, the monthly core inflation data exhibited a steady increase of 0.4%, surpassing expectations of 0.3%. Additionally, the annual core CPI rose to 3.8%, slightly higher than the anticipated 3.7%, albeit lower than the previous reading of 3.9%. Fed policymakers typically prioritize core inflation data for interest rate deliberations, as it excludes volatile food and energy prices that are susceptible to external influences.
- The hotter-than-expected inflation figures are likely to deter Fed policymakers from considering rate cuts in the near term. Fed officials have consistently emphasized that rate adjustments would only be warranted if there is confidence in a sustained return of inflation to the 2% target.
- The impact of the recent US inflation report is evident in traders’ expectations regarding the timing of potential Fed rate cuts. According to the CME Fedwatch tool, the probability of a rate cut in June has diminished to 65%, down from over 72% prior to the release of February’s inflation data.
- Meanwhile, investor attention turns to the upcoming release of the US Producer Price Index (PPI) and Retail Sales data for February, scheduled for Thursday. The PPI data will shed light on the rate of price changes for goods and services at factory gates, while Retail Sales figures will provide insights into household spending trends, which directly influence consumer price inflation. Retail Sales are forecasted to have rebounded by 0.8% following a decline of 0.8% in January.
Technical Analysis: Gold price climbs above $2,160
Following its failure to maintain near all-time highs around $2,195, gold prices experienced a notable sell-off, declining to $2,160. The precious metal is poised to potentially extend its downward trajectory towards the 20-day Exponential Moving Average (EMA) currently situated at $2,097, as the divergence between the two indicators diminishes. It’s worth noting that assets often undergo a mean-reversion movement following a substantial divergence, leading to either a price or a time correction.
On the downside, significant support levels are expected at the December 4 high near $2,145 and the December 28 high at $2,088.
The 14-period Relative Strength Index (RSI) has retreated to 73.00 after entering the overbought territory, triggering a correction.
