Gold prices held steady above the $2,600 mark on Wednesday, stabilizing after a three-day losing streak that saw the precious metal hit a two-month low of $2,590 on Tuesday. As markets brace for the release of the US Consumer Price Index (CPI) later today, traders are closely monitoring the potential impact on the Federal Reserve’s monetary policy and gold’s price trajectory.
Gold Recovers, But Challenges Lie Ahead
The recovery in gold prices is still tentative, with the metal bouncing off $2,600 as traders adjust their positions, locking in profits on short positions in gold and long positions in the US Dollar (USD). This shift in market sentiment has been partly driven by the outcome of the US presidential election earlier this month, where Republican candidate Donald Trump’s win fueled expectations of inflationary pressures due to his proposed tax and foreign trade policies. This outlook has strengthened the US Dollar and Treasury bond yields, creating headwinds for non-yielding assets like gold.
In addition, market participants anticipate that Trump’s policies could slow down the US Federal Reserve’s easing cycle, adding further support to the USD.
US CPI Data in Focus
With approximately 60% of traders now expecting a 25 basis points rate cut by the Fed in December, down from 84% a month ago, all eyes are on the US CPI data scheduled for release later today. Economists are forecasting a 2.6% annual rise in the headline CPI and a 3.3% increase in core CPI for October, with monthly figures expected to show a modest increase of 0.2% and 0.3%, respectively.
A weaker-than-expected inflation reading could bolster expectations of continued rate cuts by the Fed, which would be supportive for gold prices. On the other hand, a stronger-than-expected CPI report could reignite speculation that the Fed might reconsider its path on rate cuts, which could lead to further downside pressure on gold.
What to Expect Post-CPI
The initial market reaction to the CPI data may be brief, as attention is expected to shift to Fed Chair Jerome Powell’s speech on Thursday. Powell will address global economic perspectives at an event hosted by the Federal Reserve Bank of Dallas. Additionally, speeches from other Fed policymakers, including Minneapolis Fed President Neel Kashkari and Dallas Fed President Lorie K. Logan, will be scrutinized by markets for clues on the Fed’s future policy direction.
Gold Price Technical Analysis
On the daily chart, gold has shown resilience, managing to close at $2,600 on Tuesday despite briefly dipping below that level. This has provided a foundation for a potential recovery, with the 14-day Relative Strength Index (RSI) moving back towards the neutral 50 level.
Should this short-covering rally gather momentum, gold could target the 50-day Simple Moving Average (SMA) at $2,650. Key resistance levels lie at $2,627, the previous day’s high, and $2,670.
However, if inflation data comes in stronger than expected, gold prices may turn lower, with the 100-day SMA at $2,541 serving as the next support. The $2,585 region is expected to provide strong support for sellers in the event of further price declines.
Conclusion
Gold prices face significant uncertainty as the US CPI data approaches, and traders should remain vigilant to any shifts in market sentiment based on inflation readings and Federal Reserve commentary.
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