- Gold retreats from the $2,180 mark, reacting to hot US inflation data and Fed’s cautious stance on policy easing.
- Rise in US Treasury yields post-PPI data release dampens XAU/USD’s appeal despite risk-off market sentiment.
- Gold remains subdued as Treasury yields inch higher and the US Dollar strengthens
On Friday, the price of gold stepped back from the vicinity of $2,180, marking consecutive sessions of decline. This downward trend emerged as expectations for the initiation of a US Federal Reserve easing cycle were postponed, propelled by robust US economic data. Exceeding expectations, inflation figures provided justification for Fed Chair Jerome Powell’s cautious stance, urging patience and adherence to current monetary policy until the disinflation process unfolds. Currently, XAU/USD trades at $2,157.66, registering a 0.20% decline.
Wall Street is poised to conclude Friday’s session with a negative tone, reflective of a risk-averse sentiment prevailing in the market. Despite this, the usual surge in gold prices in such scenarios was hindered by the ascent of US Treasury yields following Thursday’s release of the Producer Price Index (PPI) data, thereby keeping XAU/USD under pressure throughout the European session and into the close of trading.
Although US economic data failed to substantially influence market dynamics, the gold market remained under pressure. The Federal Reserve’s announcement of an improvement in Industrial Production for February was followed by the University of Michigan Consumer Sentiment report, indicating sustained optimism among Americans regarding the economic outlook.
As XAU/USD hovers, the surge in the US 10-year Treasury bond yield by one basis point to 4.308% and the 0.09% ascent of the US Dollar Index (DXY), a measure of the dollar’s performance against other currencies, contribute to the current market landscape.
Daily digest market movers: Gold retreats as US yields rise
- Last Friday’s economic data unveiled a mixed picture of the US economic landscape. Industrial Production showed a modest 0.1% month-over-month (MoM) increase, a notable improvement from January’s 0.5% contraction, surpassing market expectations. Conversely, the preliminary reading of the University of Michigan Consumer Sentiment came in at 76.5, below both estimates and the previous reading of 76.9. Notably, Americans’ inflation expectations for the coming year remained steady at 3% and at 2.9% for the next five years.
- Producer Price Index (PPI) figures demonstrated strength, with a 1.6% year-over-year (YoY) increase, up from 0.9%, while the core PPI held steady at 2%, surpassing consensus forecasts. On the other hand, Retail Sales slightly missed estimates, rising by 0.6% MoM compared to the anticipated 0.8%, albeit showing improvement from the previous month’s -1.1% reading. Meanwhile, the labor market continued to exhibit tightness, with Initial Jobless Claims for the week ending March 9 dropping from 210K to 209K, below the forecasted 218K.
- Against the backdrop of reaccelerating inflation as indicated by both consumer and producer price indices, it’s anticipated that Federal Reserve officials will exercise caution in considering any monetary policy easing. During last week’s Congressional testimony, Fed Chairman Jerome Powell mentioned that while inflation appears to be cooling, any policy adjustment later in the year would depend on incoming data consistently affirming a sustainable move towards the Fed’s 2% inflation target.
- The Fed’s upcoming meeting, scheduled for March 19-20 next week, will be closely watched for any policy signals. According to the CME FedWatch Tool, the probability of a rate cut in May remains low at 11%, down from 22%, while the odds for June stand at 64%, slightly down from 72%.
Technical analysis: Gold buyers take a breather below $2,170
Gold maintains its upward trajectory, consolidating within the $2,160-$2,180 range. The formation of a symmetrical triangle suggests the potential for an upward breakout, possibly propelling XAU/USD towards the $2,200 mark. However, the Relative Strength Index (RSI) exiting from overbought territory indicates a temporary pause in buying momentum.
In the event of a breakout above the current range, buyers could target the year-to-date (YTD) high of $2,195.15. Surpassing this level would pave the way for a move towards $2,200. Conversely, a drop below $2,160 might trigger a pullback. The initial support level lies at the March 6 low of $2,123.80, followed by $2,100, then the December 28 high at $2,088.48, and finally, the February 1 high at $2,065.60.
