Gold Prices Forecast: Will CPI Data, Fed’s Stance Define Gold’s Future Course?

Highlights

• U.S. inflation data set to guide gold’s movement.
• Dollar dynamics and Treasury yields influencing gold.
• Rate hike probabilities stir market speculations.

Gold’s Rate-Driven Dance

Gold prices hovered cautiously on Tuesday, as the market’s eyes turned towards impending U.S. inflation data. Investors are keen to discern the potential impact on interest rates, especially since the Federal Reserve has hinted at more policy tightening.

Inflation and Interest Rates

Spot gold (XAU/USD) stayed unmoved at $1,921.25 per ounce, while U.S. gold futures dipped slightly. The currency scenario has added an element of unpredictability: the dollar’s recent retreat boosted gold a tad on Monday, making it more affordable for those trading in other currencies. Yet, as the dollar index shed 0.5%, yields on the benchmark 10-year Treasury note rose, curbing gold’s ascent. The U.S. Consumer Price Index (CPI) data due on Wednesday remains the focal point for traders. It’s believed to be the compass pointing towards the Fed’s interest rate decisions in the coming months.

Rate Hikes on the Horizon?

Despite gold’s mild positive start this week, the metal might soon feel the pressure. Market whispers suggest another rate hike may loom this year. While the CME FedWatch tool indicates a 93% probability of the Fed maintaining the status quo in their September meeting, the odds tilt towards a 41% likelihood of a rate hike by November. Fed officials, though cautious about immediate rate hikes, are far from declaring their mission accomplished.

Gold’s Potential Flight Path

For gold to ascend past the $2,000 mark, several dominos need to fall in its favor: the Fed’s hawkish stance needs to soften, and both the dollar index and Treasury yields must retreat. Yet, until the CPI data is revealed, markets are predicted to remain in a lull. A CPI figure aligning with or exceeding expectations might rain on gold’s parade in the short term.

Short-Term Forecast: Tentative Holding

With the U.S. dollar index reclaiming some territory pre-CPI data release, gold prices face an uncertain future. The metal’s resilience against a backdrop of a strengthening dollar and elevated U.S. yields is commendable. However, for gold to soar consistently, the winds must blow towards a Fed rate-cutting cycle.

Technical Analysis

Spot Gold’s current 4-hour price of 1919.93 sits below both the 200-4H moving average (1925.05) and the 50-4H moving average (1930.18), suggesting potential bearish sentiment. The 14-4H RSI stands at 42.23, pointing to slightly weakened momentum but not yet in the oversold territory.

Main support ranges from 1893.07 to 1885.79, offering potential downside cushion, while the primary resistance area lies between 1946.99 and 1954.88, indicating potential upside hurdles. In the absence of minor support and resistance points and with the price positioned below both key moving averages, the short-term sentiment leans bearish for Spot Gold.