Gold prices are set to finish the week with losses of around 1.60%, trading below $1,850. This decline is mostly attributed to the US inflationary data released on Valentine’s Day, which reignited investors’ worries about a hawkish Federal Reserve. US equities are trading with losses on risk aversion, as the US Consumer Price Index (CPI) for January exceeded expectations and the Producer Price Index (PPI) jumped in the monthly, headline and core readings.
The Federal Reserve’s job on inflation is not yet done, as Fed officials reiterated on Thursday. Loretta Mester, Cleveland Fed President, and James Bullard, St. Louis Fed, both made hawkish comments, which is a bad sign for Gold. The US economy, however, remains robust as evidenced by the Retail Sales and Jobless Claims data, which showed surprising increases.
Investors have begun to reprice how far the Fed will raise rates as the tightening cycle continues. Money market futures show the Federal Fund Rates (FFR) climbing above 5.3% in July, compared to 4.9% a couple of weeks ago. This has led to a jump in US Treasury bond yields, particularly the US 10-year benchmark note rate, which is now at 3.838%.
The US Dollar Index (DXY) has benefited from the jump in yields and is back above the 104.00 mark, up in the week by 0.44%. Gold, however, has found a respite after hitting a low of $1,818.97, around the 100-day Exponential Moving Average (EMA) at $1,819.49, with buyers entering in and dragging prices higher.
A daily close above the December 27 daily high-turned-support at $1,833.29 could pave the way for consolidation in the $1,830-$1,850 area. Otherwise, a bearish continuation toward the 100-day EMA is on the cards. Sellers could step in around the 50-day EMA at $1,854.27 as a solid resistance area.
Overall, the US inflationary data has caused investors to reprice the Federal Reserve’s tightening cycle, leading to a jump in US Treasury bond yields and the US Dollar Index. Gold, on the other hand, has found a respite around the 100-day EMA, but a daily close above the December 27 daily high-turned-support at $1,833.29 is needed to consolidate in the $1,830-$1,850 area. Otherwise, a bearish continuation toward the 100-day EMA is on the cards. Sellers could step in around the 50-day EMA at $1,854.27 as a solid resistance area.
In conclusion, the US inflationary data has caused investors to become more cautious, leading to a jump in US Treasury bond yields and the US Dollar Index. Gold, however, has found a respite around the 100-day EMA, but a daily close above the December 27 daily high-turned-support at $1,833.29 is needed for further consolidation. On the other hand, sellers could step in around the 50-day EMA at $1,854.27 as a solid resistance area. The outlook for Gold prices is uncertain as investors await further economic data to gain a better understanding of the US economy and Federal Reserve’s tightening cycle.
