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Gold price remains firm awaiting US CPI data and FOMC decision

  • Gold rises 0.07% as markets prepare for important US economic releases.
  • The US NFIB Small Business Optimism Index beat expectations, signaling robust economic sentiment.
  • The upcoming CPI and FOMC decision, including the ‘dot plot’, are expected to impact gold prices amid persistent inflation concerns.

Gold prices advanced for the second day in a row amid a stronger US dollar, although they remain near familiar levels as traders prepare for the release of crucial data from the United States (US). XAU/USD traders are in wait mode as the Federal Open Market Committee (FOMC) begins its two-day meeting, which will reveal the latest monetary policy decision on Wednesday. XAU/USD is trading at $2.311, up 0.07% and virtually unchanged.

Tuesday’s US economic docket remains thin with only the release of the NFIB Small Business Optimism Index for May, which beat estimates and April data. On Wednesday, the Consumer Price Index (CPI) is expected to hold firm near April numbers, hinting that inflation remains stubbornly high despite the Federal Reserve (Fed) raising rates by more than 500 basis points over the last few years.

Following the CPI, the Fed, led by Chairman Jerome Powell, will release its monetary policy statement and Summary of Economic Projections (SEP), which includes the famous ‘dot plot’ showing a “likely path” for monetary policy. .

A Reuters poll hinted that most analysts estimate a 25 basis point (bp) interest rate cut by the Fed in 2024. Meanwhile, data from the Chicago Board of Trade (CBOT) shows that The December 2024 federal funds futures contract suggests that most traders expect a 28 bp reduction by the end of the year.

Meanwhile, the 10-year US Treasury bond yield drops six basis points to 4.41%, a headwind for the yellow metal. Consequently, the DXY, an Index of the US Dollar against six other currencies, rose 0.15% to 105.25.

Daily Market Summary: Gold Price Remains Firm Awaiting US Inflation and Fed Decision

  • News that the People’s Bank of China paused its 18-month bullion buying streak weighed on the precious metal. “The PBOC’s holdings of the precious metal remained stable at 72.80 million troy ounces for May,” according to MarketWatch.
  • The US NFIB Small Business Optimism Index in May hit its highest level of the year at 90.5, up from 89.7 in April.
  • NFIB Chief Economist Bill Dunkelberg said inflation is the “most important problem” in business operations. Companies hope to hire more people according to the survey, adding that financing is one of the main business problems.
  • The US CPI for May is expected to decline from 0.3% to 0.1% monthly, and the core CPI is projected to remain stable at 0.3% monthly.
  • In the 12 months to May, the CPI is expected to remain unchanged at 3.4% compared to April, with the underlying core CPI expected to slow from 3.6% to 3.5%.
  • Last week’s US jobs data hinted that the US economy remains robust, making the Fed less likely to ease policy. However, a softer-than-expected inflation report could influence Fed Chair Powell and his team to maintain their stance of expecting three rate cuts by the end of the year.
  • According to the CME’s FedWatch tool, Tuesday’s odds of a Fed rate cut in September dropped from 50% last week to 46.7%.

Technical analysis: Gold price rises, remains around $2,310

Gold price formed a head-and-shoulders chart pattern, suggesting that the yellow metal could be heading towards the pattern’s target of $2,163 to $2,170. However, the non-yielding metal remains contained at $2,300, awaiting a new catalyst, which could be the Fed’s monetary policy decision.

If XAU/USD falls below the $2,300 figure, the next demand area would be the May 3 low of $2,277, followed by the March 21 high of $2,222. More losses lie below with the buyers’ next line of defense near the $2,200 figure.

On the contrary, if Gold buyers push prices above $2,350, a consolidation in the $2,350 to $2,380 area is expected.

economic indicator

Consumer Price Index (MoM)

The CPI is published on US Labor Department and measures price movements through the comparison between retail prices of a representative basket of goods and services. The purchasing power of the dollar is diminished due to inflation. The CPI is a key indicator for measuring inflation and purchasing trends. A reading above expectations is bullish for the dollar, while a reading below is bearish.

The US Federal Reserve has a dual mandate of maintaining price stability and maximum employment. According to such mandate, inflation should be at around 2% YoY and has become the weakest pillar of the central bank’s directive ever since the world suffered a pandemic, which extends to these days. Price pressures keep rising amid supply-chain issues and bottlenecks, with the Consumer Price Index (CPI) hanging at multi-decade highs. The Fed has already taken measures to tame inflation and is expected to maintain an aggressive stance in the foreseeable future.

Source: Fx Street

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