Gold Prices Forecast: XAU/USD Firms Ahead of Key US Inflation Data

James Hyerczyk

Anticipation of U.S. CPI data fuels investor speculation on Fed's future interest rate adjustments, impacting gold's value.

Gold Prices Forecast

In this article:

Key Points

  • CPI report crucial for Federal Reserve’s rate strategy.
  • Inflation data’s effect on U.S. dollar and gold prices.
  • Gold prices sensitive to interest rate expectations.

Early Uptrend Ahead of US Consumer Inflation Report

Gold (XAU/USD) is currently edging higher early Tuesday. This positive movement signals a shift in market sentiment towards gold, highlighting its appeal among investors in the current economic context. However, it’s more likely short-covering or position-squaring ahead of the inflation report that carries a lot of uncertainty due to its potential impact on the Fed.

At 08:30 GMT, XAU/USD is trading $2025.59, up $5.585 or +0.28%.

Key Factors Affecting Gold

The primary focus of investors is the forthcoming U.S. Consumer Price Index (CPI) report. This data is pivotal as it gives insights into inflation trends, which are critical for the Federal Reserve’s interest rate decisions. The anticipation surrounding this report is contributing to the current uptick in gold prices.

Market Activity and Technical Indicators

Currently, gold trading volume is below average, influenced by the Lunar New Year holidays impacting major Asian markets. On the technical front, gold is approaching a key support level at $2,009. If prices break below this level, it would signify a bearish trend, potentially leading to further declines towards the psychologically important support at $2,000. This movement would be critical in determining the short-term momentum of gold prices.

CPI Report Details and Short-term Forecast

Traders are closely monitoring the CPI report for indicators of inflationary pressure. A key aspect under scrutiny is whether the year-on-year CPI has slowed down from its previous rate, which stood at 3.4% in December. A slowdown in inflation could suggest a less aggressive stance on interest rate hikes from the Fed, positively impacting gold prices.

Additionally, the core CPI, which excludes volatile food and energy prices, is also a focus point. If these figures come in lower than expected, it could weaken the dollar and bond yields, further boosting gold prices. However, a higher-than-expected CPI could lead to a stronger dollar and higher yields, potentially curtailing the current positive trend in gold.

In summary, the immediate future of gold prices hinges significantly on the outcomes of the U.S. CPI report. A softer inflation reading would likely be bullish for gold, while higher inflation figures could apply downward pressure. The market is poised to react swiftly to these indicators, shaping gold’s price trend in the short term.

Technical Analysis

Daily Gold (XAU/USD)

Gold (XAU/USD) is nudging higher on Tuesday, with uncertainty ahead of the CPI data likely driving light short-covering. Nonetheless, the market remains capped by the 50-day moving average at $2032.45. This intermediate trend indicator is the key pivot today.

While the long-term trend as defined by the 200-day moving average at $1965.85 remains up, any attempts to extend the rally have been stymied by the 50-day MA for nearly a month.

A sustained move over the 50-day MA will change the intermediate trend to up. If this creates enough upside momentum then look for the rally to possibly extend into the resistance at $2067.00.

On the downside, a failure to hold the 50-day MA will signal the presence of sellers. The first target is static support at $2009.00. This is a potential trigger point for an acceleration into the 200-day MA at $1965.85.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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