Gold prices surge as dollar retreats, markets await CPI report

Investors brace for impact on Federal Reserve's monetary policy direction
Gold prices surge as dollar retreats, markets await CPI report
The yellow metal increased by 0.49 percent or $9.98 to reach $2034.36 per ounce

Gold prices have continued their upward trend today, Thursday, with the U.S. dollar in retreat. As of 10:15 UAE time, the yellow metal increased by 0.49 percent or $9.98 to reach $2034.36 per ounce. Meanwhile, gold futures for February 2024 rose by 0.52 percent or $10.4 to reach $2038.15 per ounce.

Despite these gains, traders are signaling a cautious approach ahead of the U.S. Consumer Price Index (CPI) report.

CPI report’s impact

The U.S. CPI report, slated for release at 13:30 GMT, holds significant importance in shaping the Federal Reserve’s monetary policy for the year. Traders are cautious, awaiting the data, as it is expected to show a year-on-year increase of 3.2 percent in December, with core inflation possibly dropping to 3.8 percent, its lowest since mid-2021.

Hence, investors are adopting a cautious stance ahead of the CPI report, potentially alleviating bearish pressure on gold. The figures, crucial in influencing U.S. Treasury yields and the dollar, may sway gold prices. A lower-than-expected CPI result could favor gold by pressuring yields and the dollar. Meanwhile, a higher figure might strengthen yields and the dollar, dampening gold’s appeal.

Interest rate decisions

With inflation data releases on Thursday and Friday impacting the Fed’s interest rate decisions, the market awaits insights into inflationary trends. A sign of easing inflation could suggest imminent rate cuts, boosting gold prices. However, uncertainties in monetary policy persist, with the possibility of further rate hikes, as indicated in the Federal Reserve’s meeting minutes.

Moreover, the dollar, stabilizing in 2024 after a decline in late 2023, faces speculation of interest rate cuts. Futures suggest a 69 percent chance of cuts starting as early as March.

Read: Oil stabilizes amid Saudi Arabia’s sharp price cuts

Market outlook and dynamics

Given current economic indicators, the short-term outlook for gold prices remains cautiously bullish. Anticipation of rate cuts and potential easing of inflationary pressures supports gold prices. Therefore, traders are advised to remain vigilant, with the CPI data and the Fed’s response likely shaping the market’s direction in the coming days.

A technical analysis of daily gold prices (XAU/USD) reveals a solid long-term uptrend, with the market trading above the 200-day moving average (MA) at 1963.10. A critical support cluster between the 50-day MA at 2013.64 and minor support at 2009.00 poses a decisive factor. Therefore, traders are navigating a tightrope, ready to respond to any shifts in the support cluster. The market’s proximity to support emphasizes the need for a vigilant approach in the current scenario.

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