Gold recovers ahead of US CPI inflation data
- Gold price edges higher for a second day in a row on Wednesday.
- Gradual US tariff schemes and tuned-down inflation expectations create tailwinds for Gold.
- Gold breaks out of the pennant chart formation again and could set sail to $2,700.
Gold’s price (XAU/USD) recovers initial weekly losses and edges higher for the second day in a row, trading in the $2,680s on Wednesday, after a softer-than-expected United States (US) Producer Price Index (PPI) release the previous day triggered substantial easing in US yields. Market expectations are now higher for a softer US Consumer Price Index (CPI) release this Wednesday as well. A softer reading would be beneficial for Gold to head higher.
On the economic data front, the US CPI release for December will draw all attention on Wednesday. After the surprise softer PPI print on Tuesday, market expectations are that both the monthly headline and core CPI gauges would soften from their previous readings. Later in the day, be on the lookout for comments from three Federal Reserve officials.
Daily digest market movers: Silence is golden
- President-elect Donald Trump did not comment or push back on the rumors that his administration would likely implement its tariff schemes in a very steady and gradual approach.
- The US 10-year benchmark rate falls to 4.77% at the time of writing on Wednesday, fading from its fresh 14-month high of 4.802% seen on Monday.
- The CME (Chicago Mercantile Exchange) Fedwatch tool currently shows that the Federal Reserve will keep rate expectations steady until its meeting on June 18, when odds of keeping rates unchanged at current levels stand at 43.6%, compared to 56.4% for lower rates.
- At 13:30 GMT, the US Consumer Price Index data for December will be released. The monthly core CPI measure is expected to rise 0.2% compared to 0.3% in the previous month. The monthly headline CPI reading is expected to increase steadily by 0.3%.
- At 14:00 GMT, Federal Reserve Bank of Chicago President Austan Goolsbee will discuss the economy at the Wisconsin Bankers Association 2025 Midwest Economic Forecast Forum.
- At 15:00 GMT, Minneapolis Fed President Neel Kashkari will give welcoming remarks and participate in a fireside chat with Jay Debertin, President and CEO of CHS, Inc., as part of the Minneapolis Fed’s 2025 Regional Economic Conditions Conference.
- At 16:00 GMT, Federal Reserve Bank of New York President John Williams delivers keynote remarks at the "CBIA Economic Summit and Outlook 2025" event organized by the Connecticut Business and Industry Association (CBIA) in Connecticut.
Technical Analysis: Going with a bang
Gold bulls have avoided re-entering the pennant chart formation and sent prices back above the descending trend line. From here on out, Bullion should be able to spring away now. This Wednesday’s CPI release would be ideal for pouring oil on the fire.
On the downside, the 55-day Simple Moving Average (SMA) at $2,648 is the first support. Further down, the 100-day SMA at $2,638 is the next in line. Ultimately, the ascending trend line at the lower boundary of the pennant should contain the price action from falling, standing at $2,618 for now.
On the upside, the October 23 low at $2,708 is the next pivotal level to watch. Once that level is cleared, though still quite far off, the all-time high of $2,790 is the key upside level.
XAU/USD: Daily Chart
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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