Gold price holds strength with focus on US core PCE price index data

• Gold price posts gains ahead of US Durable Goods Order data.
• Fed’s Schmid says there is no need to rush rate cuts.
• The US core PCE price index data will significantly impact prospects for Fed rate cuts.

Gold price (XAG/USD) exhibits strength against the US Dollar in Tuesday’s European session on hopes that the Federal Reserve (Fed) will eventually bring interest rates down. However, the upside in the precious metal seems capped as Fed policymakers lean towards maintaining interest rates higher for longer to build downward pressure on sticky inflation.

Non-yielding assets, such as Gold, attract higher inflows when investors believe the Fed will eventually begin to roll back its restrictive interest rate stance. Spot prices of Gold are up by 0.23% at $2,036.

Fed policymakers underpin a wait-and-watch approach on interest rates, citing that risks associated with premature rate cuts are higher than postponing them. The Fed is expected to avoid considering rate cuts until it gets evidence that inflation will fall sustainably to the 2% target.

This week, the US Dollar will be guided by the United States core Personal Consumption Expenditure – Price Index (PCE) data, which will be published on Thursday. Fed policymakers consider the underlying inflation data before preparing remarks on interest rates. The degree of change in the core PCE inflation data would influence market expectations for rate cuts.

Daily Digest Market Movers: Gold price eyes more gains while US Dollar corrects

• Gold price rises sharply to $2,040 as the US Dollar falls onto the backfoot.
• The precious metal climbs to almost a three-week high even though investors remain uncertain about rate cuts by the Federal Reserve (Fed).
• All Fed policymakers have argued against premature rate cuts as they could flare up price pressures again.
• Also, policymakers still gather evidence to confirm that inflation will decline sustainably to the 2% target.
• On Monday, Kansas City Federal Reserve Bank President Jeffrey Schmid said a tight labor market, considerable momentum in households’ demand, and inflation above 2% leave no room for an aggressive adjustment in the monetary policy stance.
• As per the viewpoint of Jeffrey Schmid, the Fed needs to be patient and observe how the economy responds to policy tightening. The rate cuts could be announced only after gaining confidence that a victory can be announced against sticky inflation.
• This week, the array of the United States economic data will direct further action in the Gold price.
• US Durable Goods Orders, second estimates for Q4 Gross Domestic Product (GDP), and core PCE price index data are lined up for release.
• The US Durable Goods Orders for January are anticipated to have contracted sharply by 4.5% against a stagnant performance in December. Weak demand for Durable Goods indicates a soft outlook for core inflation.
• Investors will majorly focus on the core PCE price index, which could meaningfully influence the expectations for rate cuts by the Fed.
• The expectations from investors show that the core PCE price index data rose by 0.4% on a month-on-month basis against a 0.2% increase in December. In the same period, the annual inflation data is expected to have decelerated to 2.8% from 2.9%.

Technical Analysis: Gold price marches toward $2,040

Gold price approaches the downward-sloping border of the Symmetrical Triangle pattern, which is plotted from the December 28 high at $2,088. The upward-sloping border of the chart pattern is placed from the December 13 low at $1,973.

The triangle could break out in either direction. However, the odds marginally favor a move in the direction of the trend before the formation of the triangle – in this case, up. A decisive break above or below the triangle boundary lines would indicate a breakout is underway. 

The 14-period Relative Strength Index (RSI) oscillates in the 40.00-60.00 region, which indicates indecisiveness among investors.