Gold’s Reaction to US Dollar Strength and Market Sentiment Indicates Potential for Retesting All-Time Highs
Gold experienced a pullback following the release of the hotter-than-expected CPI report, illustrating the yellow metal’s responsiveness to U.S. dollar strength and market sentiment rather than concrete inflation data. According to Matt Weller, Head of Market Research at StoneX, while gold is often viewed as a hedge against inflation, factors such as the Federal Reserve’s stance and trader sentiment play a larger role in determining short-term price movements.
Weller noted that today’s higher-than-expected inflation numbers could reinforce the Federal Reserve’s higher-for-longer stance, potentially boosting the U.S. dollar and making gold less attractive compared to stocks or bonds. As a result, gold faced a selloff, dropping to 1-month lows near $2015. However, despite the short-term drop, the longer-term technical outlook for gold remains positive.
Weller emphasized that gold has formed a large rounded bottom over the last few years, with resistance at the record highs in the $2075 area. He also pointed out that gold prices are seeing consistent support over the last month on the rising 50-day EMA, hinting at a possible bounce.
Looking ahead, Weller concluded that as long as gold continues to put in higher lows on both daily and weekly charts, pressure will build on its $2075 resistance area, potentially setting the stage for a significant breakout later this year.
Insight: Gold’s reaction to inflation numbers and the Federal Reserve’s monetary policy highlights the metal’s vulnerability to shifting market sentiment and the broader macroeconomic environment. Despite near-term fluctuations, the technical setup for gold suggests the potential for a bullish breakout, targeting a retest of the key $2075 resistance level. Traders and investors should keep a close watch on how market dynamics and economic data continue to influence gold’s price movements.
