Gold Price Forecast: XAU/USD buyers await validation and US inflation data

Gold price pauses its recovery early Friday, awaits key US inflation data.
US Dollar bounces with Treasury bond yields, following weak US Retail Sales data-led decline.
Gold price remains a ‘sell the bounce’ trade as the daily RSI turns south below the 50 level.

Gold price is treading water just above $2,000, consolidating its rebound from two-month lows of $1,984 set on Wednesday. The further upside in Gold price appears elusive, as the US Dollar (USD) has regained lost footing amid a modest recovery in the US Treasury bond yields and a cautiously optimistic market environment.

Weak US Retail Sales data saves the day for Gold price

Markets cheer Thursday’s weak US Retail Sales data for January, which brought early US Federal Reserve (Fed) rate cuts chatter back on the table, accentuating the profit-taking slide in the US Dollar, as well as, the US Treasury bond yields.

The market mood remains mixed so far this Thursday’s trading, as investors assess the conflicting messages from US Federal Reserve (Fed) policymakers and its implications on the pricing of the dovish policy pivot this year.

The uncertainty around the timing of Fed interest rate cuts, following strong US Nonfarm Payrolls (NFP) and Consumer Price Index (CPI) data for January, keeps the corrective mode intact in the US Dollar, as well as, the US Treasury bond yields.

US Retail Sales declined by 0.8% in January, the US Census Bureau reported on Thursday, worse than the market expectations for -0.1%.

Early Friday, the US Dollar managed to gather strength once again, in anticipation of hot Producer Price Index (PPI) inflation data and an improvement in the UoM Consumer Sentiment.

The US PPI is forecast to rise at an annual pace of 0.6% in January, as against a 1.0% increase reported previously, Monthy PPI inflation is expected to rebound to 0.1% in the same period vs. -0.2% previous. Meanwhile, the UoM Preliminary Consumer Sentiment is set to inch higher to 80.0 this month vs. January’s 79.0.

The data could reverberate hawkish Fed expectations, fuelling another upside in the US Dollar at the expense of the Gold price. Additionally, the end-of-the-week flows will influence the Gold price action while investors will resort to profit-taking after an action-packed US economic calendar this week.

Apart from the data, speeches from Fed officials will be closely scrutinized for the Fed rate cut expectations. US data and the Fedspeak would likely set the tone for the Gold market in the coming week.

Gold price technical analysis: Daily chart

As observed on the daily chart, Gold price recaptured the 100-day Simple Moving Average (SMA), now at $1,994 on Thursday on a daily closing basis, reviving the bullish interest.

The 14-day Relative Strength Index (RSI), however, has turned lower below the midline, warranting caution for Gold buyers.

Adding credence to the bearish bias, the 21-day and 50-day SMAs Bear Cross, confirmed last week, also remains in play.

Therefore, Gold price likely remains a ‘sell the bounce’ trading opportunity.

The immediate support level is aligned at the 100-day SMA of $1,994. Other healthy support levels are now seen at the two-week low of $1,984, below which the December 13 low of $1,973 and the horizontal 200-day SMA at $1,966 will be tested.

On the flip side, if the renewed upside in Gold price gains traction, a fresh rally toward the 21-day SMA of $2,023 could be in the offing on a sustained break above the previous day’s high of $2,008.

Gold FAQs

Why do people invest in Gold?

Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.

Who buys the most Gold?

Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.

How is Gold correlated with other assets?

Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.

What does the price of Gold depend on?

The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.

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