Gold prices exhibited a nuanced performance during the Asian session on Tuesday, finding support near the significant 200-day Simple Moving Average (SMA) but displaying a lack of decisive momentum. The XAU/USD pair is currently hovering around the $1,923 mark, marking a minor uptick for the second consecutive day. However, bullish enthusiasm remains subdued as traders eagerly anticipate the upcoming release of the latest US Consumer Price Index (CPI) data, scheduled for Wednesday.
The forthcoming US CPI figures carry substantial weight as they will offer fresh insights into the future trajectory of the Federal Reserve’s (Fed) stance on interest rates. Following the widely expected pause in September, a robust US CPI print would reinforce market expectations of further tightening by the Fed, potentially leading to a downward pressure on gold prices – an asset that yields no interest. It’s noteworthy that market sentiment has already incorporated the possibility of another 25 basis points (bps) rate hike by year-end.
Optimism regarding the US economy received a boost from positive macroeconomic data released last week, signaling resilience in the nation’s economic landscape. This development bolsters the Fed’s ability to maintain elevated interest rates for an extended period, thereby supporting higher US Treasury bond yields. Consequently, the US Dollar (USD) experienced a six-month peak last week. However, the greenback witnessed a minor retreat on Monday and continues to hover near multi-day lows on Tuesday, providing some support for gold prices.
Additionally, the current cautious sentiment prevailing in equity markets contributes to gold’s status as a safe-haven asset. Market participants remain apprehensive about the deteriorating economic conditions in China, the second-largest global economy. This, coupled with concerns stemming from rapidly escalating borrowing costs, has dampened investors’ appetite for riskier assets, leading to an influx of safe-haven investments into gold.
Nevertheless, traders exhibit a degree of hesitancy in placing aggressive bullish bets, opting to stay on the sidelines until the release of the US CPI report. The imminent European Central Bank (ECB) meeting, scheduled for Thursday, is another pivotal event that could sway gold prices. Analysts are divided on whether the ECB will continue its tenacious streak of interest rate hikes, driven by persistent inflation, or decide to pause amidst a darkening economic outlook within the Euro Zone.
Market participants will closely watch the developments surrounding these key data releases and central bank actions, which will ultimately influence the next directional move for gold prices. Consequently, prudent investors are advised to await confirmation of robust follow-through buying before positioning for a potential resurgence, building on the recent recovery from the $1,885 support level, which was tested during August’s five-month low.