- Gold price keeps range near $2,350, as US CPI inflation holds the key.
- US Dollar struggles amid sluggish US Treasury bond yields, improved risk appetite.
- Will hot US CPI data trigger the long due Gold price correction?
Gold price is treading near $2,350 in early Europe on Wednesday, hanging below the new record high of $2,365 reached a day ago. Gold traders have turned to the sidelines ahead of an action-packed US economic calendar later in the day.
Gold price looks to US CPI data, Fed Minutes and Fedspeak
The main event risk for the day remains the all-important US Consumer Price Index (CPI) data release, which will likely confirm whether the US Federal Reserve (Fed) will begin lowering interest rates in June. Currently, markets are pricing in a 54% chance of a June Fed rate cut, according to the CME Group’s FedWatch Tool, slightly higher than the 49% probability seen on Monday.
Economists expect the US annual headline CPI to rise 3.4% in March, up from a 3.2% increase in February while the Core CPI inflation is set to fall to 3.7% YoY last month, as against the previous growth of 3.8%. On a monthly basis, CPI is seen rising 0.3% in March vs. 0.4% previous. Core CPI inflation may edge lower from 0.4% to 0.3% MoM in the reported period.
A downside surprise to the annual headline CPI figure accompanied by a softer-than-expected monthly CPI print could revive the dovish Fed expectations, smashing the US Dollar and the US Treasury bond yields. Gold price is expected to extend its record-setting rally on a softer US CPI readout. Conversely, Gold price could see a sharp correction should the data suggest that inflation remains sticky in the US and that the Fed needs to rates higher for longer.
Also, of note for Gold price remains the Minutes of the March Fed meeting, which could shed light on the thinking among the Fed policymakers about the path forward on interest rates, as the US labor market holds tight.
A flurry of speeches from Fed officials – Goolsbee, Bowman and Barkin will also keep Gold traders entertained.
In the meantime, a sense of caution and sideways trading in the US Dollar could leave Gold price gyrating in a tight range. Gold markets stay unnerved, in anticipation of heightened volatility in the North American session later on Wednesday.
Gold price technical analysis: Daily chart
Gold buyers continued to shrug off the extremely overbought 14-day Relative Strength Index (RSI) conditions, as they clinched another record high at $2,365 on Tuesday.
If a Gold price correction sets in on a hotter US CPI report, the previous record high of $2,331 will be tested
The extension of the Gold price pullback could test the April 4 high at $2,305, below which the April 5 low of $2,268 will be tested.
However, if Gold buyers regain poise on cooling US inflation, a fresh rally toward the $2,400 level cannot be ruled out.
Ahead of that, Gold price needs to take out the $2,370 round figure on a sustained basis. The next upside target is seen at the $2,450 psychological level.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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