Gold Prices Forecast: Bullish Tone as US Dollar Weakens Ahead of CPI Data

Gold Prices Gain Amid Economic Uncertainty

Gold prices climbed on Wednesday, buoyed by a softened US dollar and declining Treasury yields as the market’s attention turned towards the upcoming US consumer inflation data. This report is highly anticipated as it could signal the Federal Reserve’s readiness to adjust interest rates.

At 10:41 GMT, XAU/USD is trading $2369.77, up $11.79 or +0.50%.

Inflation and Federal Reserve’s Stance

The US consumer price index (CPI) data, set for release at 12:30 GMT, is projected to reveal a month-over-month increase in core inflation of 0.3% for April, a slight decrease from March’s 0.4%. This anticipated data follows recent producer price index (PPI) figures that exceeded expectations, suggesting sustained inflationary pressures. Federal Reserve Chair Jerome Powell emphasized the gradual decline of inflation and indicated the Fed’s current stance on maintaining interest rates to ensure economic stability.

Market Reactions and Economic Indicators

Investors are cautiously optimistic, hoping for a CPI report that could justify a less aggressive rate policy in the near term. A focus area within the CPI is housing costs, which significantly impact the overall inflation measurement. Despite some signs of easing in the rental market, broader disinflation trends necessary for rate adjustments appear elusive, suggesting the Fed might maintain its current policy longer than previously expected.

Outlook for Gold and Interest Rates

Given the mix of high inflation readings and a cautious Federal Reserve, market sentiment is veering away from early expectations of multiple rate cuts this year. Instead, projections have been pared down to possibly two cuts, with the first not anticipated before September. This cautious approach is mirrored in the resilience of stock markets and corporate earnings, which continue to perform well despite economic uncertainties.

Short-Term Forecast

Looking ahead, the immediate future of gold prices appears promising. If the upcoming CPI data shows a deceleration in inflation, even if modest, it could bolster gold’s position as a hedge against economic instability. The ongoing uncertainty and the Fed’s signals on interest rates are likely to keep gold as a critical asset for diversification in investors’ portfolios. In the short term, the outlook for gold remains cautiously bullish, contingent on forthcoming economic indicators that may either confirm or challenge the Fed’s current policy stance.

Technical Analysis

XAU/USD is posting a modest gain on Wednesday, trading at the upper-end of a four-day consolidation pattern. The price action suggests a building upside bias with a potential breakout over last week’s high at $2378.56. This move would put the market within striking distance of its record high at $2431.59.

On the downside, the first support is a minor pivot at $2354.70, followed by a minor bottom at $2332.11.

The major support is the price cluster formed by the 50-day moving average at $2278.84 and the short-term bottom at $2277.34.