- Gold price steadies after rallying following the release of US data that altered the interest rate outlook, a critical factor for Gold.
- The data indicated subdued inflation and stagnant spending, hinting at a potential decrease in interest rates.
- Lower interest rates bode well for Gold price, which is currently trending upwards on the charts.
Gold stabilizes after a surge triggered by US data release
Gold price (XAU/USD) is trading flat in the $2,380 range on Thursday, taking a breather after a notable increase the previous day. The surge came after US inflation data prompted a reevaluation of interest rate expectations, impacting both the US Dollar (USD) and Gold price.
In-depth analysis of US data impact on Gold
Gold price is holding steady today, with investors cashing in on profits after a more than one percent jump on the back of the latest US economic data. The release of cooler Consumer Price Index (CPI) figures and Retail Sales data for April reshaped the future interest rate narrative in the US, a pivotal element influencing Gold evaluations.
The lower-than-anticipated CPI data reflected a deflationary trend, advancing the timeline for an expected interest rate cut by the Federal Reserve (Fed). According to the CME FedWatch Tool, there is now a 75% likelihood of a lower fed funds rate post-September meeting, up from the 65% probability before the CPI report, as noted by FXStreet Editor Lallalit Srijandorn.
Anticipation of reduced interest rates boosts Gold as it diminishes the opportunity cost of holding the precious metal compared to cash or bonds. Moreover, the depreciation of the US Dollar following the data benefits Gold, given that, similar to most commodities, Gold is primarily traded in USD.
Despite the positive outlook for Gold amidst declining rates, the metal’s value is additionally supported by sustained high demand from central banks—particularly those in emerging markets—persistent geopolitical uncertainties, and fears related to a potential breakdown in global trade cohesion along geopolitical lines.
Notably, data from the World Gold Council (WGC) indicates a surge in Gold demand, with a 3% increase to 1,238 tonnes, marking the strongest first quarter performance since 2016, according to Srijandorn.
Technical analysis and Gold price trajectory
The price of Gold (XAU/USD) has pushed near the $2,400 resistance level as it extends its short-term uptrend.
XAU/USD 4-hour Chart
Although the Relative Strength Index (RSI) is in overbought territory, signaling caution for traders to avoid adding to long positions with a potential pullback risk, the current uptrend suggests a bullish bias for Gold price. A breach above $2,400 could lead to further upside towards $2,417 (April 19 high) and $2,430 (all-time high).
Furthermore, the daily and weekly charts also reflect a bullish trend, providing a favorable backdrop for Gold’s performance in the near term.
Economic Indicator
Consumer Price Index (MoM)
Inflationary or deflationary tendencies are measured by periodically summing the prices of a basket of representative goods and services and presenting the data as The Consumer Price Index (CPI). CPI data is compiled on a monthly basis and released by the US Department of Labor Statistics. The MoM figure compares the prices of goods in the reference month to the previous month. The CPI is a key indicator to measure inflation and changes in purchasing trends. Generally, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish.
**Additional Insight:**
– **Global Economic Uncertainty**: The geopolitical tensions and the looming threat of trade wars continue to drive investors towards safe-haven assets like Gold. The uncertainty surrounding global economic stability is a key factor contributing to the increased demand for Gold, reinforcing its bullish outlook.
– **Central Bank Purchases**: Central banks, especially in emerging markets, have been actively increasing their Gold reserves, further bolstering the demand for the precious metal. This sustained purchasing by central banks adds a stable foundation to Gold’s value and supports its upward price trajectory.
– **Technical Indicators**: While technical analysis provides valuable insights into Gold price movements, it’s crucial to consider the broader economic and geopolitical context when interpreting trends. The convergence of positive technical signals with macroeconomic factors amplifies the confidence in Gold’s bullish momentum.
