Gold Price Forecast: Investors Await CPI Report for Insight into Fed’s Policy Moves

Gold Highlights

• Investors await latest CPI data for insights into Fed’s policy moves.
• Gold prices may be affected by U.S. inflation and interest rate decisions.
• Discussions on raising U.S. debt limit may add to investor uncertainty.

Gold Overview

On Wednesday, Gold (XAU) prices are trading within a narrow range as traders prepared themselves for crucial U.S. inflation data scheduled for later in the day, which could potentially influence the Federal Reserve’s policy stance.

As of 04:52 GMT, Gold (XAU) is being traded at $2030.00, exhibiting a decline of $6.35 or -0.31%. On Tuesday, the SPDR Gold Shares ETF (GLD) concluded at $189.00, showing an increase of $1.31 or +0.70%.

US CPI Data Release Awaited

Investors are eagerly anticipating the release of the latest consumer and producer price index reports. The U.S. consumer price index (CPI) data is scheduled to be released on Wednesday at 12:30 GMT. Economists polled by Reuters are predicting a 5.5% year-on-year increase in core consumer prices for April. According to a Dow Jones survey, economists are expecting April’s CPI print to reflect a 0.4% increase on a month-over-month basis and 5% on a year-over-year basis.

Fed’s Next Move: Data-Dependent

The upcoming data could offer fresh insights into the Federal Reserve’s next policy moves, particularly regarding interest rates. Fed Chairman Jerome Powell emphasized that their decision will be data-dependent during a post-meeting press conference last week. Following the Fed’s meeting, which resulted in a 25 basis point interest rate hike, the central bank hinted that its rate-hiking campaign may be coming to an end.

Markets Expect Fed to Hold Rates

Despite Powell’s assurance that rate cuts are unlikely to be announced soon, concerns about elevated rates dragging the U.S. economy into a recession have been raised. Currently, markets are pricing in an 83% chance of the U.S. central bank holding rates at their current level in June.

Fed Governor: US Economy Slowing

In the realm of monetary policy, Fed Governor Philip Jefferson announced on Tuesday that the U.S. economy is experiencing a gradual slowdown. New York Fed President John Williams chose not to declare whether the central bank will stop raising interest rates.

Gold May Regain Safe-Haven Status

A bleak forecast for the US currency and yields may potentially revitalize the safe-haven status of gold. Additionally, concerns about the global economy and demand-supply outlook may offer further support to the commodity in the near future.

Investors Eyeing US Debt Ceiling Discussions

Investors are also keeping a watchful eye on developments related to the U.S. debt ceiling. On Tuesday, President Joe Biden and leading lawmakers agreed to initiate additional discussions. The purpose is to break a stalemate concerning raising the $31.4 trillion U.S. debt limit. The country may potentially face an unprecedented default in just three weeks due to this decision.

Inflation Data Could Fuel Volatile Reaction

Several factors will impact gold prices in the coming days. If U.S. inflation remains moderately controlled, the Federal Reserve may halt rate hikes, which could potentially weaken the dollar and bolster gold. However, if the upcoming inflation report indicates a high possibility of another Fed rate hike in June, gold prices could decline to the range of $1,956 – $1,923. Higher interest rates can reduce the appeal of non-yielding assets like gold, even though investors view it as an inflation hedge. Therefore, the direction of gold prices in the short-term will depend on the actions and decisions of the Federal Reserve, as well as the performance of the U.S. economy.

Technical Analysis

Gold is edging lower, but remains above its pivot at $2002.54. This price is controlling the near-term direction of the market.

A sustained move over $2002.54 will indicate the presence of buyers. The first upside target is (R1) at $2035.78. Overtaking this level will indicate the buying is getting stronger with the next major target (R2) at $2082.03.

A failure to hold $2002.54 will signal the presence of sellers. If this generates enough downside momentum then look for the selling to possibly extend into (S1) at $1956.30.