Gold retreats as investors see first rate-cut from Fed in May now

• Gold price faces pressure as hopes for an interest rate cut by the Fed have been postponed to May.
• Fed Daly emphasized the need to calibrate interest rates moves very carefully to keep risks balanced.
• Market participants will focus on the preliminary Q4 GDP and core PCE price index data this week.

Gold price (XAU/USD) falls back on Monday as investors reconsider the outlook on interest rates by the Federal Reserve (Fed). Policymakers are consistently supporting the tight interest rates narrative to ensure the return of inflation to the 2% target in a sustainable manner. The precious metal is facing some sell-off as the prospect of imminent rate cuts fades amid still-high price pressures due to robust consumer spending and full employment conditions.

Meanwhile, the absence of fresh cues about Middle-East tensions has also trimmed the appeal for bullions. Investors should brace for a sharp volatility ahead amid a data-packed week. The US Dollar Index (DXY) hovers near the crucial support of 103.00 ahead of the release of key economic indicators such as preliminary Q4 Gross Domestic Product (GDP) data and core Personal Consumption Expenditure (PCE) price index for December.

Daily digest market movers: Gold price falls amid uncertainty ahead of US data

• Gold price corrects to near $2,020 as investors dialed back expectations of early rate cuts by the Federal Reserve.
• Stubborn price pressures, robust consumer spending and upbeat labor market conditions have forced traders to pare bets supporting an interest rate cut decision in March.
• As per the CME Group Fedwatch tool, chances in favour of an interest rate cut by 25 basis points (bps) in March have dropped to 42%, sharply down from the 70% seen two weeks ago.
• This indicates that investors don’t expect the Fed to reduce borrowing costs before the May monetary policy meeting. 
• Apart from easing rate-cut expectations, the scheduled monetary policy announcement by the European Central Bank (ECB) for this week is also capping the upside for Gold price.
• Meanwhile, Fed policymakers continued to warn last week about a rapid ‘rate-cut campaign’ as it could spoil the entire efforts yet made to bring inflation to current levels of 3.9% from a whooping high of 6.6%.
• Early reduction in interest rates could also bring an uptick in the overall demand and henceforth boost prices.
• On Friday, San Francisco Fed Bank President Mary Daly said current monetary policy is in good shape and risks towards the economy are balanced. 
• Mary Daly advised to reduce interest rates very carefully, keeping in mind that the return of inflation to the 2% target should not be compromised.  She said the Fed will focus on maintaining full employment this year in contrast with the agenda of ensuring price stability in 2023.
• No comments from Fed officials are expected this week as the US central bank has entered its blackout period ahead of its meeting on January 31. 
• This week, market participants will focus on the preliminary S&P Global PMIs for January, preliminary Q4 GDP data, and core PCE price index for December. Upbeat economic data would further squeeze expectations of a rate cut in March.

Technical Analysis: Gold price faces barricades near 20-day EMA

Gold price drops gradually to near $2,020 as bets supporting a rate-cut decision by the Fed in March have eased significantly. The precious metal struggles to regain traction as the 20-day Exponential Moving Average (EMA) around $2,031 is consistently acting as a barricade for bulls. Going forward, a sideways performance is highly likely as investors await the crucial economic data due later this week, which is expected to provide a fresh outlook on inflation and the interest rate outlook.