Gold Prices Forecast: Steady Before CPI Report and Fed Decision

Gold Prices Hold Steady Awaiting CPI Report and Fed Decision

Gold prices traded in a narrow range on Wednesday as investors awaited the U.S. consumer inflation report and the Federal Reserve’s commentary on interest rates. Spot gold remained weak, reflecting the lack of buying interest due to an absent strong bullish catalyst.

At 10:55 GMT, XAU/USD is trading $2313.475, down $3.430 or -0.15%.

CPI Report and Fed Meeting Anticipation

Investors are focused on the U.S. consumer price index (CPI) numbers, due at 12:30 GMT, followed by the Fed’s policy meeting conclusion. Concerns are growing within the Fed as inflation is not decreasing as quickly as anticipated earlier in the year. A robust jobs market is pushing potential rate cuts further into the future, creating a headwind for gold.

Market Division on Fed Rate Cuts

The market is divided on whether the Fed will cut rates once or twice this year, especially after a strong U.S. labor report. Attention is on the updated economic projections and Chair Jerome Powell’s press conference. The Fed’s median dot plot will be critical, as it could signal two rate cuts instead of the one currently priced in by the market, potentially supporting gold prices.

Impact of Strong U.S. Jobs Data and China’s Gold Purchases

Strong U.S. jobs data and reports of China’s central bank pausing gold purchases led to the biggest drop in bullion since November 2020 last week. Despite China taking a break from gold in May, ongoing diversification efforts away from the U.S. dollar are expected to continue. However, funds could shift to alternatives like Bitcoin.

Surging Asian Demand

Demand for gold in Asia remains strong despite prices hovering near record highs hit in May. This indicates robust regional interest in the precious metal despite global price pressures.

Market Forecast: Fundamentally Optimistic, Technically Risky

With the CPI report and Fed meeting set to provide critical insights, Wednesday is a pivotal day for economic news. The CPI is expected to show modest month-over-month movement, with an annual rise still above the Fed’s 2% target. The Fed is likely to maintain current interest rates but may adjust future rate cut projections. Given these factors, gold is expected to experience limited downside risk. A bullish outlook hinges on the Fed signaling more than one rate cut, supporting a potential rise in gold prices. Conversely, fewer cuts could maintain downward pressure.

Overall, cautious optimism prevails among traders, with gold prices likely to stabilize or rise if the Fed’s actions align with market expectations. Despite the optimistic fundamental outlook, technically, the XAU/USD faces significant downside risks if buyers fail to regain the 50-day moving average.

Technical Analysis

XAU/USD is inching higher on Wednesday but still trading inside Friday’s wide range, which indicates investor indecision and impending volatility.

In order to drive momentum higher, buyers are going to have to overcome the 50-day moving average at $2344.51.

Unfortunately for bullish gold traders, the way of least resistance is down. Crossing to the weak side of the 50-day MA has put the market in a position to challenge the last swing bottom at $2277.34, and this is a potential trigger point for an even steeper decline into the next swing bottom at $2146.15 and perhaps the long-term 200-day moving average at $2096.83.