Gold price near three-week lows of $1,976 early Wednesday, with US CPI data and upcoming Fed policy decision driving market sentiment
The gold price is currently hovering around $1,976, representing a challenge to bullish commitments early Wednesday. The recent US Consumer Price Index (CPI) data release has resulted in a mixed outlook for gold, with investors now waiting for the US Federal Reserve (Fed) policy announcements for further direction.
The release of the CPI data, showing a 0.1% increase last month and a 3.1% increase annually in November, has fueled a recovery in the US dollar and Treasury bond yields. This new data has caused investors to reassess their expectations for Federal Reserve interest rate decisions. Gold price dropped briefly to $1,980 but has since remained relatively steady, indicating that investors are cautious about taking new positions given the uncertainty in the market.
The upcoming Fed decision and policy outlook are now the key drivers of market sentiment. The Fed is widely expected to keep interest rates unchanged at 5.25%-5.50%, but statements from Fed Chair Jerome Powell and the Dot Plot chart are anticipated to provide insight into the Fed’s monetary policy outlook. Currently, the market is pricing in about a 43% chance of a March Fed rate cut, and a 75% probability for May. Depending on the Fed’s commentary, a new sell-off in gold price or a solid recovery could be seen.
From a technical standpoint, the daily chart for gold price indicates a potential test of the 50-day Simple Moving Average (SMA) at $1,970, with the 14-day Relative Strength Index (RSI) indicator showing lower movement. This suggests further downside potential, with the 200-day SMA at $1,953 being the next possible support level. Alternatively, a sustained recovery would require the gold price to surpass the 21-day SMA at $2,006, opening the path towards the $2,040 supply zone.
Insight: The upcoming Fed decision is crucial for the gold market, as it will provide clarity on the Fed’s monetary policy outlook. Depending on the Fed’s stance, we can expect to see either a strong recovery or a continued decline in the gold price. Additionally, the technical analysis indicates that the gold price might face further downside pressure in the near term, making it a critical time for investors to closely monitor market developments.
