The Gold price (XAU/USD) remains under pressure as it approaches the European session on Tuesday, displaying a cautious tone among traders. Despite lingering near the record highs reached last week, a slight pullback is observed as market participants opt to lighten their bullish positions. This strategic move precedes the eagerly anticipated release of the US Consumer Price Index (CPI) figures, a critical factor influencing the Federal Reserve’s (Fed) policy decisions and, consequently, impacting the trajectory of the non-yielding yellow metal.
The prevailing sentiment suggests traders are preparing for potential outcomes based on the forthcoming US CPI data. The growing consensus revolves around the notion that the US central bank will initiate interest rate cuts at the June policy meeting. This belief is further reinforced by a continued decline in US Treasury bond yields. The diminishing strength of the US Dollar (USD) adds to this narrative, creating favorable conditions for gold.
Federal Reserve Chair Jerome Powell, in his recent semi-annual congressional testimony, acknowledged persistent inflation but hinted at potential delays in implementing an early rate cut. Consequently, a hotter-than-expected US CPI reading could prompt the central bank to signal a reduction in the number of rate cuts this year, leading to short-term selling pressure on gold. Conversely, a softer reading might fuel speculation of an earlier rate cut, providing support to XAU/USD.
Amidst this backdrop, the precious metal is likely to experience increased volatility, offering short-term trading opportunities. The overall fundamental landscape, however, leans in favor of bullish sentiment, supporting the potential for dip-buying at lower levels. As traders brace for the impact of the upcoming US CPI release, the gold market remains poised for dynamic shifts in the coming sessions.
