After facing downward pressure from stronger-than-expected US inflation data, gold prices dipped below the $2,000 mark, reaching a two-month low. This recent CPI report weakened the prospect of an early rate cut by the Federal Reserve, challenging gold investors.
The latest data revealed a higher-than-anticipated rise in US consumer prices for January, driven by increasing housing and healthcare costs. The core CPI surged by 0.4% month-on-month, marking the largest jump in eight months and a 3.9% year-over-year increase.
CME’s “Fed Watch” now shows a 91.5% probability that the Fed will maintain interest rates between 5.25%-5.50% in March, with only an 8.5% chance of a 25-basis-point reduction. The likelihood of unchanged rates till May is 77.5%, with a 21.2% chance of a cumulative 25-basis-point cut and a 1.3% chance of a 50-basis-point decrease.
Stubborn inflation data tends to cast a shadow over gold, as it suggests interest rates may remain at higher levels, increasing the opportunity cost of holding the non-yielding asset.
Investors are now setting their sights on US retail sales data due Thursday and the Producer Price Index (PPI) on Friday. Insights from several Fed officials throughout the week will also guide market expectations.
Some Fed officials, including Chair Jerome Powell, expressed the need for more evidence of ongoing inflation reduction before considering rate cuts. The recent inflation data has clearly pressured the market’s view of Fed policy, tilting sentiment toward a longer period of high interest rates.
Technical Gold Price Outlook
On the daily chart, gold has broken below its accumulative structure, falling under the critical $2,000 level yesterday. It is now poised to target the 0.50% Fibonacci retracement level.
Technical conditions favor a bearish outlook as the price action falls below the EMA21 and the $2,000 threshold, which will become resistance in the near term.
In the short run, gold’s price will be guided by the newly formed price channel (a). If selling pressure continues below the 0.50% Fibonacci level, a further downtrend could emerge, potentially targeting the 0.618% Fibonacci level.
However, corrective rebounds are possible but likely capped by technical levels like the $2,000 pivot, $2,007 resistance, and the 0.382% Fibonacci retracement.
As long as gold maintains its price within channel (a) and below EMA21, the short-term technical outlook leans towards further declines; the levels to watch are as follows:
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