Gold bulls seem non-committed ahead of crucial US consumer inflation data

• Gold price gains positive traction on Thursday, although it remains confined in a familiar range.
• A softer USD, geopolitical risks and China’s economic woes act as a tailwind for the XAU/USD.
• The Fed rate-cut uncertainty should cap any meaningful gains ahead of the crucial US CPI report.

Gold price (XAU/USD) catches some bids on Thursday and maintains its bid tone through the first half of the European session, albeit remains below the $2,040-$2,042 resistance zone. The US Dollar (USD) trades with a mild negative bias in a familiar range held over the past week or so amid the uncertainty over the Federal Reserve’s (Fed) rate-cut path. This, along with geopolitical risks stemming from the Israel-Hamas war and worries about a slow recovery in China, lends some support to the safe-haven precious metal.

That said, investors have been scaling back their expectations for a more aggressive policy tightening by the Fed in the wake of a still-resilient US economy. This remains supportive of elevated US Treasury bond yields and holds back bulls from placing fresh bets around the non-yielding Gold price. Investors also seem reluctant and prefer to wait for the US consumer inflation figures, due later today, for cues about the Fed’s future policy decisions. This will drive the USD demand and determine the near-term trajectory for the XAU/USD. 

Daily Digest Market Movers: Gold price awaits US CPI for fresh impetus, upside seems limited

• The uncertainty over the Federal Reserve’s rate-cut path keeps the US Dollar bulls on the defensive and assists the Gold price in gaining some positive traction amid some repositioning trade ahead of the US consumer inflation figures.
• The markets were quick to react to the Fed’s surprising dovish tilt at the December policy meeting and are now pricing in five interest rate cuts by the end of 2024, summing up to a cumulative of around 140 basis points (bps) of easing.
• The incoming US macro data underscored the fundamental resilience of the American economy, which, along with mixed signals from Fed officials, forced investors to scale back their expectations for more aggressive policy easing.
• New York Fed President John Williams said on Wednesday that the US central bank is in a ‘good place’ and has time to think about what’s next for rates, though would eventually need to get policy back to more neutral levels.
• US Treasury Secretary Janat Yellen spoke from Boston on Wednesday, saying that said more work is required to get inflation under control and pledging to use “all tools at our disposal” to bring costs down.
• The yield on the benchmark 10-year US government bond holds steady above the 4.0% threshold and should help limit deeper losses for the USD, capping any further gains for the non-yielding yellow metal ahead of the US data.
• The headline US CPI is expected to rise by 0.2% in December, lifting the yearly rate to 3.2% from 3.1%, while the core gauge (excluding food and energy prices) is anticipated to ease to 3.8% YoY from 4.0% in the previous month.
• Cooler-than-expected inflation data will give the Fed more reason to cut interest rates this year and turn out to be a negative trigger for the Greenback, which, in turn, should lead to a fresh leg up for the precious metal.
• Conversely, a stronger US CPI print should provide the US central bank headroom to keep interest rates higher for longer and boost the buck, forcing the XAU/USD to break through a multi-week low touched on Monday.

Technical Analysis: Gold price sticks to modest gains, though remains below $2,040-2,042 resistance zone

From a technical perspective, any subsequent move up might continue to confront stiff resistance near the $2,040-2,042 region. A sustained strength beyond has the potential to lift the Gold price further towards last Friday’s swing high, around the $2,064 area en route to the $2,077 area. Some follow-through buying will negate any near-term negative outlook and set the stage for a move towards reclaiming the $2,100 round figure.

On the flip side, the $2,020 level, followed by the multi-week low around the $2,017-2,016 area and the 50-day Simple Moving Average (SMA), currently near the $2,013 region should protect any meaningful slide. A convincing break below the latter will be seen as a fresh trigger for bearish traders and drag the Gold price to the $2,000 psychological mark. Given that oscillators on the daily chart have just started gaining negative traction, the downward trajectory could extend further towards the December swing low, around the $1,973 region. The XAU/USD might eventually drop to the $1,965-1,963 confluence, comprising the 100- and 200-day SMAs.