Gold consolidates below $4,600, remains close to record high as US CPI report looms
- Gold enters a consolidation phase as bulls turn cautious ahead of the key US CPI report.
- Fed independence fears and rate cut bets continue to lend support to the commodity.
- Geopolitical uncertainties favor the XAU/USD bulls and back the case for further gains.
Gold (XAU/USD) is seen consolidating below the all-time peak, touched the previous day, and the $4,600 mark during the Asian session on Tuesday as traders opt to wait for the release of the latest US consumer inflation figures. The crucial data might offer more cues about the US Federal Reserve's (Fed) rate-cut path, which, in turn, will influence the near-term US Dollar (USD) price dynamics and provide a fresh directional impetus to the non-yielding yellow metal. In the meantime, a generally positive tone around the equity markets acts as a headwind for the safe-haven commodity.
Meanwhile, concerns about the Fed's independence keep the USD bulls on the defensive. Moreover, geopolitical risks stemming from the US incursion in Venezuela, US President Donald Trump's threat of military action in response to the unrest in Iran, the White House’s insistence on acquiring Greenland, and the Russia-Ukraine war continue to support the Gold. This suggests that the path of least resistance for the XAU/USD pair remains to the upside, and any corrective pullback could be seen as a buying opportunity. However, slightly overbought conditions warrant caution for bulls.
Daily Digest Market Movers: Gold bulls await US inflation figures for more Fed rate cut cues
- A Trump administration criminal probe into Federal Reserve Chair Jerome Powell fueled uncertainty about the US central bank's independence and pushed the safe-haven Gold to a fresh all-time high at the start of this week.
- Fed Chair, in a rare statement, said that the threat of criminal charges against him is a consequence of US President Donald Trump's anger over the central bank's refusal to cut interest rates despite repeated public pressure.
- Geopolitical tensions also remained elevated after Trump told reporters that he was considering a range of options, including potential military action, in response to Iran's crackdown on mass anti-government demonstrators.
- Adding to this, Trump announced late Monday that any country doing business with Iran will face a new tariff of 25% on its exports to the US. This turns out to be another factor acting as a tailwind for the XAU/USD pair.
- The closely-watched US Nonfarm Payrolls report released last Friday backed the case for potentially stagnant policy in the first quarter. Traders, however, are still pricing in two more interest rate cuts by the Fed later this year.
- The outlook, in turn, fails to assist the US Dollar in attracting any meaningful buyers and further lends support to the commodity. The XAU/USD bulls, however, opt to wait for the release of the latest US consumer inflation figures.
- The headline US Consumer Price Index (CPI) is expected to have risen by 0.3% in December, and the yearly rate is seen holding steady at 2.7%. Excluding Food and Energy, the core CPI is estimated to edge higher to 2.7% YoY.
- Any significant divergence in comparison to the broader consensus would lead to a shift in the likelihood of a Fed rate cut at the January 28 meeting, which, in turn, would infuse volatility around the USD and the precious metal.
Gold could face some resistance near the top end of an ascending channel, around $4,650
The ascending channel from $3,920.24 guides the uptrend, with resistance near $4,656.02. The 50-day Simple Moving Average (SMA) trends higher, underscoring firm buying bias. The XAU/USD pair holds above the SMA, preserving bullish control. The Moving Average Convergence Divergence (MACD) line stands above the Signal line, and both lie in positive territory. The widening positive histogram suggests strengthening momentum, while the Relative Strength Index (RSI) prints at 70.26 (overbought), which could cap gains into the channel ceiling.
Trend conditions remain favorable while the 50-day Simple Moving Average (SMA) rises and price respects it, with the SMA at $4,255.80 acting as nearby support. The MACD above zero reinforces the bullish tone, though momentum could cool as the RSI holds in overbought territory. A pullback would be expected to remain contained above the SMA, whereas a close above the channel cap would open the path for continuation.
(The technical analysis of this story was written with the help of an AI tool.)
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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