In the Asian trading session on Tuesday, the price of gold garnered support near the significant 200-day Simple Moving Average (SMA), halting the overnight pullback from the $1,930 level, which marked a four-day high. Presently, XAU/USD is hovering around the $1,923 mark, slightly up for the second consecutive day. However, the precious metal’s bullish momentum remains subdued as traders eagerly await the release of the latest United States (US) consumer inflation figures scheduled for Wednesday.
The focal point of this anticipation is the crucial US Consumer Price Index (CPI), which is expected to provide fresh insights into the Federal Reserve’s (Fed) future rate hike trajectory, following the widely predicted pause in September. A stronger US CPI reading would reinforce market expectations for further tightening of monetary policy by the Fed. Consequently, this could pave the way for a downward trajectory for gold prices, given its non-yielding nature. It’s noteworthy that market sentiment has been pricing in the possibility of one more 25 basis points (bps) rate hike by the end of the year.
These expectations were bolstered by the positive US macroeconomic data released last week, which indicated a resilient economy. This data should theoretically allow the Fed to maintain higher interest rates for a more extended period. The hawkish outlook has supported elevated US Treasury bond yields and propelled the US Dollar (USD) to a six-month peak last week. Nevertheless, the Greenback experienced some profit-taking on Monday and continued to trade near a multi-day low on Tuesday, providing some support to gold prices.
Furthermore, the prevailing cautious sentiment in equity markets is reinforcing the precious metal’s status as a safe haven. Concerns persist among investors regarding the deteriorating economic conditions in China, the world’s second-largest economy. These concerns, combined with apprehensions about the adverse effects of rapidly rising borrowing costs, are tempering the appetite for riskier assets. Consequently, some investors are diverting their funds toward gold as a hedge.
Nonetheless, traders appear cautious about making aggressive bullish bets and are inclined to remain on the sidelines until after the release of the US CPI report. Additionally, the highly anticipated European Central Bank (ECB) meeting scheduled for Thursday will likely impact gold prices. Analysts hold differing opinions regarding whether the ECB will proceed with its historic policy-tightening cycle by hiking interest rates for the tenth consecutive time, or if it will pause this cycle due to a dimming economic outlook in the Euro Zone.
The outcome of key data releases and central bank decisions will serve as vital determinants of the next directional move for gold prices. Thus, it is advisable to await substantial follow-through buying before positioning for a continuation of the recent recovery that began from the $1,885 region—a level seen more than five months ago in August.
