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- Gold price keeps sight on $1,900 as US Dollar seems vulnerable with US Treasury bond yields.
- Softer United States Consumer Price Index data to bolster dovish Federal Reserve pivot expectations
- Gold price remains a ‘buy the dip’ trade amid a favorable daily technical setup.
Gold price is seeing fresh demand early Thursday, as bulls fight back control amid typical cautious trading ahead of the highly anticipated United States Consumer Price Index (CPI) data release. The US Dollar is consolidating near seven-month troughs, undermined by falling US Treasury bond yields.
United States Consumer Price Index data holds the key
The United States Dollar has paused its downside but remains vulnerable, in face of a sell-off in the US Treasury bond yields amid increased expectations that a sustained cooling of the US Consumer Price Index will prompt the Federal Reserve (Fed) to slow the pace of rate hikes and possibly cut rates by year-end. According to the CME FedWatch tool, markets are wagering a Fed terminal rate at around 4.95% in June, following a decline to 4.46% by December, suggesting rate cuts in 2023. For the February policy decision, a 25 basis points (bps) rate hike by the Federal Reserve is widely expected, despite the recent hawkish commentary from the policymakers, endorsing a peak rate in the range of 5%-5.25% to tame inflation.
The critical Consumer Price Index from the United States is, therefore, eagerly awaited to determine the Federal Reserve’s future policy path. The Headline December Consumer Price Index is seen easing to 6.5% YoY from 7.1% in November while the Core CPI is also expected to drop to 5.7% YoY vs. 6.0% previous. A softer-than-expected United States Consumer Price Index print could cement the narrative of a dovish Federal Reserve pivot later this year, triggering a sharp sell-off in the US Dollar alongside the US Treasury bond yields, allowing Gold price to recapture the $1,900 threshold. The benchmark 10-year US Treasury bond yields could breach the key 3.50% level.
“On the flip side, a hot Core CPI reading combined with a strong increase in the “Services less energy services” item should cause investors to reassess the possibility of a Fed policy pivot and trigger a steady recovery in the US Dollar,” FXStreet’s Analyst Eren Sengezer explains.
Markets ignore China’s Consumer Price Index data
With all eyes on the United States Consumer Price Index release, markets showed little reaction to the releases of the CPI and Producer Price Index (PPI) data from China. The Consumer Price Index in December was 1.8% higher than a year earlier, rising faster than the 1.6% annual gain seen in November. Meanwhile, the annualized Producer Price Index slowed in December to 0.7% from the 1.3% seen in the previous month. Rising inflation in the world’s largest gold consumer, China, could likely weigh on demand for Gold. For now, investors are unperturbed by the China worries, with risk sentiment at the mercy of the Federal Reserve expectations.
Gold price technical analysis: Daily chart
Nothing seems to have changed technically for Gold price, as acceptance above the $1,880 level remains elusive.
Daily closing above the latter is needed to extend the uptrend, with bulls eyeing for a sustained move above the $1,900 mark.
The next upside target is seen toward May 2022 high at $1,910.
The 14-day Relative Strength Index (RSI) continues to trade listlessly just below the overbought territory, implying buyers’ presence.
The 50-Daily Moving Average (DMA) and 200DMA Golden Cross also remains in play.
On the flip side, rejection once again above the $1,880 level could reinforce the downside toward Friday’s low at $1,865.
Further down, the $1,850 psychological level will be the level to beat for Gold sellers.