- Gold price extends its recovery in a holiday-shortened week.
- The US PPI rose strongly in January but this was put down to seasonally adjusted fluctuations.
- Fed Bostic sees two rate cuts this year commencing from summer.
Gold prices (XAU/USD) are maintaining their upward momentum for the third consecutive session on Monday, despite diminishing expectations of Federal Reserve (Fed) rate cuts before the June monetary policy meeting. The precious metal is displaying resilience in the face of persistent core Personal Consumption Expenditure price index (PCE) concerns, triggered by sticky Consumer Price Index (CPI) and Producer Price Index (PPI) data for January.
Investors attribute the higher Gold prices to less significant PPI data for January, with the rise attributed to seasonal adjustment issues. Fed policymakers view the recent consumer price inflation spike as a one-time occurrence, emphasizing the longer-term trend indicating a decisive downward movement in inflation.
Atlanta Federal Reserve Bank President Raphael Bostic's forecast that progress in underlying inflation measures could lead to interest rate reductions from the summer has alleviated the opportunity cost of holding non-yielding assets such as Gold.
In the realm of market movements, Gold is surging to $2,020 as the US Dollar remains under pressure, despite hotter-than-anticipated PPI data for January tempering expectations of rate cuts in the May monetary policy meeting by the Federal Reserve. The CME FedWatch tool suggests a steady interest rate decision in the March and May monetary policy meetings, with a 25-basis point rate cut expected in the June policy meeting.
Stronger consumer price inflation and PPI data for January have pushed back expectations of Fed rate cuts before June, allowing the Fed more time to assess the need for cuts. Premature rate cuts could potentially undermine efforts to contain inflation, jeopardizing progress made in bringing it down from historic highs.
The US Dollar Index (DXY), reflecting the Greenback's value against six rival currencies, has declined to 104.20 ahead of a shortened week in the US due to President’s Day.
Looking ahead, investors are eyeing the Federal Reserve Open Market Committee (FOMC) minutes for January’s policy meeting, scheduled for release on Wednesday. Additionally, the preliminary S&P Global Manufacturing PMI for February will be closely watched on Thursday.
From a technical perspective, Gold prices are staging a recovery for the third consecutive trading session, reaching the 20-day Exponential Moving Average (EMA) around $2,020.
The outlook for Gold could turn bullish if it manages to sustain above the 20-day EMA. However, the downward-sloping trendline from the December 28 high at $2,088 may continue to act as a barrier. The 14-period Relative Strength Index (RSI) oscillates in the 40.00-60.00 range, indicating a sideways outlook for Gold prices.
