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Gold price traders seem non-committed ahead of crucial US inflation data next week

  • Gold price remains confined in a familiar range held over the past week or so.
  • Reduced bets for an aggressive Fed policy easing cap the upside for the metal.
  • Traders seem reluctant ahead of next week’s release of the US inflation figures.

Gold price (XAU/USD) extends its sideways consolidative price move through the first half of the European session on Friday as traders seem reluctant amid the uncertainty over the Federal Reserve's (Fed) rate cut path. Robust US macro data, along with the recent hawkish remarks by several FOMC members, forced investors to scale back their expectations for early and steep rate cuts in 2024. This remains supportive of elevated US Treasury bond yields, which, along with the prevalent risk-on environment, continues to undermine the safe-haven precious metal.

The markets, meanwhile, are still pricing in five rate cuts over the course of the seven remaining FOMC policy meetings this year. This keeps the US Dollar (USD) bulls on the defensive and offers some support to the Gold price. Investors also prefer to wait on the sidelines ahead of next week's release of the latest US consumer inflation figures, which will play a key role in influencing the Fed's future policy decisions. This will drive the sentiment surrounding the USD and help determine the next leg of a directional move for the non-yielding yellow metal.

Daily Digest Market Movers: Gold price looks to next week's US CPI report for fresh directional impetus

  • Robust US macro data and hawkish comments by Federal Reserve officials force investors to scale back their bets for steep rate cuts this year, which continues to act as a headwind for the non-yielding Gold price.
  • Fed Chair Jerome Powell said on Sunday that the central bank can be prudent in deciding when to start easing on the back of a strong economy, smashing any remaining hopes for an interest rate cut in March.
  • Adding to this, Richmond Fed Thomas Barkin said on Thursday that the central bank has time to be patient on rate changes and that he needs to see good inflation numbers being sustained and broadening.
  • This assists the yield on the benchmark 10-year US government bond to hold above 4.0% and undermines the XAU/USD, though subdued US Dollar price action lends support and helps limit the downside.
  • Market participants now look to the US consumer inflation figures due next week for cues about the timing and the pace of rate cuts this year, which, in turn, should provide a fresh directional impetus to the metal.
  • The commodity, meanwhile, remains on track to register modest weekly losses, though remains confined in a multi-week-old trading range held since the beginning of this year, warranting caution for aggressive traders.

Technical Analysis: Gold price struggles for a firm near-term direction, awaits breakout through recent trading range

From a technical perspective, the range bound price action points to indecision among traders over the near-term trajectory for the Gold price. Moreover, neutral oscillators on the daily chart warrant some caution before placing aggressive bets. In the meantime, the $2,022-2,020 area might continue to protect the immediate downside ahead of the weekly low, around the $2,015 region. Some follow-through selling will expose the $2,000 psychological mark, below which the Gold price could accelerate the slide towards the 100-day Simple Moving Average (SMA), currently around the $1,987 zone. The downfall could extend further towards the very important 200-day SMA, near the $1,966-1,965 region.

On the flip side, the weekly swing high, around the $2,044-2,045 area, is likely to act as an immediate barrier ahead of the $2,054-2,055 zone and the $2,065 region, or the monthly peak. A sustained strength beyond the latter has the potential to lift the Gold price back towards the YTD peak, near the $2,078-2,079 touched in January. The subsequent move-up should allow the XAU/USD to reclaim the $2,100 mark and climb further to the next relevant hurdle near the $2,120 region.

US Dollar price this week

The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the weakest against the New Zealand Dollar.

 USDEURGBPCADAUDJPYNZDCHF
USD 0.10%0.09%-0.03%0.21%0.62%-0.96%0.84%
EUR-0.10% 0.00%-0.13%0.11%0.52%-1.05%0.75%
GBP-0.10%0.00% -0.13%0.10%0.52%-1.06%0.73%
CAD0.03%0.13%0.14% 0.24%0.64%-0.92%0.86%
AUD-0.21%-0.11%-0.11%-0.24% 0.41%-1.17%0.62%
JPY-0.63%-0.53%-0.53%-0.64%-0.38% -1.59%0.21%
NZD0.94%1.04%1.04%0.91%1.15%1.55% 1.77%
CHF-0.84%-0.76%-0.75%-0.87%-0.63%-0.21%-1.80% 

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).

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.

Author

Haresh Menghani

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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