Gold price (XAU/USD) struggles to maintain the minor intraday gains, though they managed to stay above the psychological level of $2,500 during early European trading on Thursday. The recent US Consumer Price Index (CPI) report, published on Wednesday, indicated persistent inflation, reducing hopes for a significant interest rate cut by the Federal Reserve (Fed). As a result, US Treasury bond yields saw a slight increase, pushing the US Dollar closer to its monthly peak, creating pressure on the non-yielding asset.
Furthermore, the optimistic mood in global stock markets has limited Gold’s upward movement as investors turned toward riskier assets. Despite this, expectations are growing that the Fed will begin easing interest rates starting in September, lowering rates by 25 basis points at its remaining meetings this year. However, with Gold trading in a narrow range, caution is advised before making any decisions, and traders will be closely watching the upcoming US Producer Price Index (PPI) report for further guidance.
Market Overview: Gold Faces Challenges Amid Modest US Dollar Strength
On Wednesday, the gold price struggles experienced a decline following the release of the US CPI report, which curbed investors’ expectations of a 50 basis points interest rate cut by the Fed. The US Bureau of Labor Statistics revealed a 0.2% rise in the headline CPI for August, while the annual rate fell from 2.9% to 2.5%, marking the smallest increase since February 2021.
The core CPI, which excludes the more volatile food and energy sectors, saw a 0.3% rise in August and a 3.2% increase over the past 12 months, aligning with market expectations. The chances of a 25 basis points interest rate cut at the upcoming Federal Open Market Committee (FOMC) meeting rose to 87%, up from 71% before the release of FedWatch tool. the CPI data, as reported by the CME Group’s FedWatch tool. The diminishing prospects for a more aggressive rate cut pushed US Treasury bond yields higher, as well as the US Dollar, both factors typically bearish for Gold.
Technical Analysis: Gold Prices Likely to Face Resistance Near $2,530-$2,532
From a technical standpoint, Gold’s current range-bound trading is forming a rectangle pattern on short-term charts, often viewed as a consolidation phase following a recent rally. Mixed signals from daily oscillators suggest caution, as traders await a breakout from this range before taking new positions. Gold may encounter stiff resistance near the $2,530-$2,532 area, which represents its all-time peak touched in August.
Any move beyond this range could attract more buyers, pushing the price higher and signaling a continuation of the established uptrend. However, if Gold falls below the $2,500 mark, support is expected around $2,485 and then at $2,470, which is the lower boundary of the current trading range. A break below these levels might trigger a sell-off, potentially dragging prices toward the 50-day Simple Moving Average (SMA) around $2,453-$2,452, and possibly down to sub-$2,400 levels near the 100-day SMA support.
Key Factors Impacting Gold Price
- US Treasury Yields: Higher bond yields increase the opportunity cost of holding non-yielding assets like Gold, pushing prices down.
- US Dollar Strength: A stronger US Dollar generally leads to weaker Gold prices, as it becomes more expensive for buyers using other currencies.
- Inflation Data: US inflation figures, particularly the CPI and PPI, will play a crucial role in shaping expectations about the Fed’s next move.
Upcoming Economic Data to Watch
Traders are now awaiting the release of the US Producer Price Index (PPI) report for further clues on inflationary pressures, which could influence the Fed’s policy decisions. While the report may not trigger significant market moves due to the likelihood of an imminent Fed rate cut, it will still provide insight into inflation trends in the US economy.
Conclusion
In conclusion, Gold price struggles action remains under pressure due to a combination of a stronger US Dollar and investor sentiment dampened by expectations of only modest interest rate cuts. Although Gold has managed to stay above the crucial $2,500 mark, significant resistance levels remain near the $2,530-$2,532 area. Investors are advised to stay cautious and monitor upcoming economic data for further price direction.
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