Gold tumbles even though US monthly CPI revised lower

Gold price struggles to deliver a decisive move as investors are uncertain about Fed rate cuts.
Investors shifted focus toward the US inflation data, which will be published next week.
Middle East tensions continue to offer growth to safe-haven Gold.

Gold price (XAU/USD) delivers volatile moves as the US Bureau of Labor Statistics (BLS) having revised the Consumer Price Index (CPI) numbers to reflect the new seasonal adjustment factors. Monthly inflation data for December has been revised lower to 0.2% from 0.3%. The Core CPI was unrevised at 0.3% for the same period. November's CPI increase was revised higher to 0.2% from 0.1%. For October, a rise of 0.1% was left unchanged.

Ths precious metal is still inside Thursday’s trading range as investors shift focus toward the United States Consumer Price Index (CPI) data for January, which will be released on Tuesday. The inflation data will provide more cues about when the Federal Reserve (Fed) could start reducing interest rates. The sooner interest rates fall, the better it will be for Gold price, which will lower the opportunity cost of holding a non-yielding asset.

As Fed policymakers consistently emphasize keeping interest rates restricted until they get more evidence that inflation will sustainably return to 2% and labor market conditions remain upbeat, investors are losing confidence in the Fed easing interest rates from May. The CME FedWatch tool shows that the chances favoring a rate cut by 25 basis points (bps) in May have fallen to 51%.

When considering cutting interest rates, the Fed consistently observes its dual mandate of easing price pressures and full employment. US labor market conditions are upbeat as weekly jobless claims are consistently declining. For the week ending February 2, individuals claiming jobless benefits for the first time were at 218K, lower than expectations of 220K and the former release of 228K. This suggests less need to lower interest rates and stimulate growth.

As market participants are losing confidence in the Fed easing interest rates from May, the broader appeal of the US Dollar is improving. The US Dollar is negatively correlated to the Gold price and tends to attract higher foreign outflows if the Fed maintains a hawkish stance (higher interest rates) for longer.

Daily Digest Market Movers: Gold price stays inside Thursday's trading range

Gold price remains mainly within the $2,020-$2,040 range despite Federal Reserve (Fed) policymakers not declaring a timeframe for rate cuts.
Fed policymakers are holding back from providing a concrete time for rate cuts as they are still unconvinced that inflation will come down sustainably to the 2% target.
The Fed needs to see price pressures easing for months to be confident about achieving price stability.
On Thursday, Boston Federal Reserve Bank President Susan Collins reiterated the need to ensure strong labor growth and progress in inflation towards 2% before shifting to an expansionary policy stance.
Susan Collins warned about risks of inflation remaining stalled due to strong economic growth despite being optimistic about easing price pressures.
Richmond Federal Reserve Bank President Thomas Barkin advised the central bank to take some time before easing interest rates as they could feed price pressures again.
While uncertainty over Fed rate-cut timing is capping the upside in the Gold price, deepening Middle East tensions are acting as a tailwind.
The outlook for safe-haven assets such as Gold improves in times of geopolitical uncertainty.
Tensions in the Middle East have deepened as Israel’s Prime Minister Benjamin Netanyahu has rejected the ceasefire proposal due to unacceptable terms for a truce. The Israeli leader said the complete destruction of Hamas is only a few months away.
Meanwhile, the US Dollar Index (DXY) trades back and forth in a narrow range above 104.00 as investors await the United States inflation data for January, which will be released on Tuesday, February 13.
The appeal for the US Dollar could improve further if the inflation data turns out persistent. A stubborn inflation data would allow the Fed to keep interest rates higher for longer. This would lead to higher foreign capital inflows for the US Dollar.

Technical Analysis: Gold price trades topsy-turvy near $2,030

Gold price is struck inside Thursday’s range of $2,020-2,039 in Friday’s London session. An inability to deliver a decisive move indicates a sharp contraction in volatility.

The Gold price has been forming a Symmetrical Triangle chart pattern since December on a daily time frame, demonstrating indecisiveness among market participants. The downward and upward-sloping trendline borders of the aforementioned pattern are plotted from December 28 high at $2,088 and December 13 low at $1,973, respectively. The 50-day EMA at $2,023 continues to cushion the Gold price bulls.

Fed FAQs

What does the Federal Reserve do, how does it impact the US Dollar?

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

How often does the Fed hold monetary policy meetings?

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

What is Quantitative Easing (QE) and how does it impact USD?

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

What is Quantitative Tightening (QT) and how does it impact the US Dollar?

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.

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