Gold Prices Forecast: CPI Data Release Will Be Pivotal Moment for XAU/USD

Key Points

• Gold resilient despite reduced rate cut expectations for 2024.
• CPI and Core CPI projected to rise, impacting Fed’s rate decision.
• Fed’s cautious stance may influence short-term gold market trends.

US Consumer Price Inflation on Tap

Gold prices are nearly unchanged in Monday’s holiday-muted trading, as the market’s attention is fixed on the upcoming U.S. Consumer Price Index (CPI) report. This week is pivotal, with a barrage of U.S. Federal Reserve officials set to speak and key economic data releases, including retail sales and the Produce Price Index (PPI).

At 07:34 GMT, Gold (XAU/USD) is trading $2024.66, up $0.30 or +0.01%.

Gold’s Resilience and Positioning

Despite a notable reduction in market expectations for 2024 rate cuts since January, gold’s price has shown remarkable stability. Current neutral positioning suggests that a softening dollar and increased U.S. rate cut bets, in response to deteriorating data, could boost gold prices. However, a higher-than-expected CPI could propel gold to test the psychological $2,000/Oz level again.

Key Economic Indicators and Forecasts

The CPI data, due Tuesday at 13:30 GMT, is anticipated to rise by 0.2% in January, mirroring December’s increase. Core CPI is also expected to climb by 0.3%. Year-over-year, the CPI and Core CPI are forecasted to increase by 2.9% and 3.7%, respectively. These figures are crucial as they reflect the Fed’s ongoing battle against inflation. Market expectations for a March rate cut are low, but May still holds over a 50% chance for a reduction.

Federal Reserve’s Stance

Fed officials, including Chairman Jerome Powell, have emphasized the need for more evidence of sustained inflation reduction before considering rate cuts. Powell’s recent comments underscore a cautious approach, balancing the risks of moving too early or too late. The strength of the U.S. economy provides a buffer against recession risks, allowing a more measured approach to rate adjustments.

Market Reactions and Speculation

With likelihood of a rate cut at the March meeting minimal, and a stronger probability in May, COMEX gold speculators have increased their net long positions, signaling potentially growing bullish sentiment in the gold market.

Short-term Market Forecast

The CPI report’s outcome will be a significant driver for short-term market movements. A higher-than-expected CPI may reinforce the Fed’s cautious stance on rate cuts, strengthening the dollar and potentially pressuring gold prices.

Conversely, a lower CPI could fuel expectations for earlier rate cuts, weakening the dollar and bolstering gold. Given the current market sentiment and positioning, the forecast leans slightly bullish for gold, especially if CPI data indicates a steady decline in inflation, aligning with the Fed’s objectives.

Technical Analysis

Despite exhibiting some early strength, Gold (XAU/USD) is currently trading on the weakside of the 50-day moving average at $2033.48, perhaps signaling that the intermediate trend is about to turn lower. Nonetheless, this level should be treated like a pivot today.

If selling pressure prevails then look for a break into static support at $2009.00, followed by $2000.00. The latter is a potential trigger point for an acceleration into the 200-day moving average at $1965.83.

Overcoming the 50-day MA, will signal the return of buyers. If this creates enough upside momentum then look for a potential surge into the static resistance at $2067.00.