Gold consolidates below $5,000 as US CPI report looms
- Gold recovers modestly on Friday after a steep drop below the $5,000 handle.
- US CPI data is set to shape expectations for the timing of Federal Reserve rate cuts.
- Technically, XAU/USD holds near the 20-day SMA, with $4,800 acting as initial support.
Gold (XAU/USD) attracts modest dip-buying interest on Friday after sliding to a near one-week low the previous day, breaking below the $5,000 psychological mark. The recovery, however, lacks follow-through, as traders await the US Consumer Price Index (CPI) report due later in the American session at 13:30 GMT.
At the time of writing, XAU/USD trades around $4,960, up nearly 1% on the day.
US CPI puts Fed rate-cut timing in focus
Elevated volatility in the precious metals space is keeping bulls from adding aggressive long positions after the recent correction in Gold's price from record highs around $5,600. Gold fell around 3.5% on Thursday, while Silver (XAG/USD) slumped nearly 11.5%, as broad-based outflows hit risk assets alongside equities and cryptocurrencies.
Traders now look to the US CPI release to assess the timing of Federal Reserve (Fed) interest rate cuts, as markets continue to price roughly 50 basis points (bps) of easing in the second half of the year.
A firmer-than-expected reading would reinforce the case for the Fed to remain patient before resuming rate cuts, particularly after the latest US jobs data showed resilient labour market conditions.
Fading expectations for near-term Fed rate cuts are lending modest support to the US Dollar (USD), which, in turn, is acting as a mild headwind for Bullion. At the same time, broader macroeconomic fundamentals remain supportive, with persistent geopolitical tensions and strong central bank buying helping to limit downside.
Technical analysis: XAU/USD consolidates below the $5,000 handle
XAU/USD remains in consolidation on the daily chart after the sharp pullback from record highs. Prices are hovering near the 20-day simple moving average (SMA), which also aligns with the middle Bollinger Band at $4,969.20.
Bollinger Bands continue to widen, with the upper band at $5,350.76 and the lower band at $4,587.64, indicating elevated volatility as price gravitates toward the middle line. The Relative Strength Index (RSI) at 53.92 is neutral, signalling balanced momentum.
A failure to sustain gains above the 20-day SMA would keep downside pressure in place, with initial support seen around the $4,800 zone, followed by the lower Bollinger Band near $4,588.
On the upside, bulls would need a clear break above the $5,000-$5,100 area to revive bullish momentum.
(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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