Gold Price Forecast: Investors Eyeing US Inflation Data Amidst Debt Ceiling Talks

Gold (XAU) Highlights

• Traders await April’s US consumer price index data
• Job growth in April increases yields and may impact Federal Reserve policy
• The US banking sector and debt ceiling are also major market concerns

Gold (XAU) Overview

Gold (XAU) prices are moving in a tight range on Tuesday as investors wait for U.S. inflation data, which could give hints on the Federal Reserve’s future plans. Traders are also watching the lack of progress in Washington about increasing the debt ceiling.

At 05:07 GMT, Gold (XAU) is trading at $2026.20, up $4.86 or 0.24%. Yesterday, the SPDR Gold Shares EFT (GLD) closed at $187.71, up $0.25 or 0.13%.

Investors to Analyze CPI for Fed Clues

Gold traders are keeping an eye on the upcoming April U.S. consumer price index, which is a widely watched measure of inflation. According to economists polled by Dow Jones, they expect CPI to have risen 5% last month compared to the same time last year. They also predict a month-over-month gain of 0.4%.

Investors will analyze the report for any indications on future Federal Reserve policy moves. As of Monday, traders are only predicting a 13.1% chance of another 25 basis-point rate hike next month, according to the CME Group’s FedWatch tool.

On Friday, yields increased following stronger-than-expected job growth in April. The Bureau of Labor Statistics reported 253,000 nonfarm payrolls were added, exceeding the anticipated 180,000 by Wall Street. The unemployment rate was also below expectations at 3.4%, making it less likely that the Federal Reserve will stop its aggressive tightening campaign. This policy shift is something that many on Wall Street had been hoping for.

Gold Prices Vulnerable to Rate Hike

Gold prices could drop to $1,956 – $1,923 if the inflation report indicates a high possibility of another Fed rate hike in June, as this would reduce the appeal of the non-yielding asset. Despite gold being seen as an inflation hedge, higher rates can dampen its appeal. At present, traders have a 86.9% expectation that the U.S. central bank will maintain its current interest rate level in June.

Yellen Warns of Debt Ceiling Impact

On Monday, Treasury Secretary Janet Yellen warned that failing to increase the federal debt limit of $31.4 trillion would severely impact the U.S. economy and weaken the dollar’s status as the world’s reserve currency.

In other news, according to the New York Federal Reserve’s report, U.S. consumers’ inflation expectations were mixed in April.

Alongside economic data, market participants are also keeping a close eye on updates related to the U.S. banking sector and debt ceiling.

The latest data from the Fed survey, released on Monday, revealed that higher interest rates set by the central bank were starting to impact the finance sector. If there is news of additional strain in the banking sector, gold prices could rise towards the $2,100 level.

Technical Analysis

Gold is edging higher, well 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.