Gold is staging a comeback toward $5,000 early Friday, reversing a part of Thursday’s 3.5% sell-off. The focus now remains on the all-important US Consumer Price Index (CPI) release for the next big move in Gold.
Gold awaits US CPI inflation data for fresh volatility
Gold is back on the bids, continuing to find bargain hunters at lower levels as geopolitical tensions and US Federal Reserve (Fed) interest rate cut expectations remain in play.
Despite a positive surprise in the January Nonfarm Payrolls data, markets still price in atleast two Fed rate cuts this year, according to the CME Group’s FedWatch Tool.
Therefore, the major US CPI data remains critical in gauging whether the Fed will conform to the market expectations or lean hawkish if inflation picks up in January.
The US core annual CPI is seen easing to 2.5% in January from December’s 2.6% print. The core monthly CPI is expected to rise by 0.3% in the same period against a 0.2% increase in December. Meanwhile, the headline annual CPI inflation is also likely to soften to 2.5%.
A hotter-than-expected core annual and monthly CPI readings could pour cold water on bets for two Fed rate cuts this year, fuelling a sustained US Dollar (USD) recovery at the expense of non-yielding assets such as Gold.
Markets brace for intense volatility on the US CPI release this Friday, with a sense of caution reviving Gold buyers in the lead-up to the critical event risk.
Gold tumbled close to 3.5% on Thursday as an intense selling wave gripped markets and unexpectedly ramped up haven demand for the USD. Concerns around artificial intelligence- (AI) driven disruption resurfaced, this time spreading to the commercial property space.
Real estate stocks were the latest sector to come under pressure following earlier sell-offs in software and financial services tied to AI fears, per CNBC News.
Gold price technical analysis: Daily chart
The 21-day Simple Moving Average (SMA) rises above the 50-, 100-, and 200-day SMAs, underscoring bullish alignment. All SMAs trend higher while price holds above them, keeping buyers in control. The 21-day SMA currently stands at $4,952.03 and offers nearby dynamic support. The Relative Strength Index (RSI) sits at 54.80 (neutral) and is edging higher, reinforcing a steady bid.
Measured from the $5,597.89 high to the $4,401.99 low, the Fibonacci retracement framework points to overhead barriers on rebounds. The 50% retracement at $4,999.94 caps initial advances, with the 61.8% at $5,141.05 as the next resistance. A sustained push above the former would open room toward the latter, while rejection keeps the upside constrained and leaves the focus on nearby moving average support.
(The technical analysis of this story was written with the help of an AI tool.)
Economic Indicator
Consumer Price Index ex Food & Energy (MoM)
Inflationary or deflationary tendencies are measured by periodically summing the prices of a basket of representative goods and services and presenting the data as the Consumer Price Index (CPI). CPI data is compiled on a monthly basis and released by the US Department of Labor Statistics. The MoM print compares the prices of goods in the reference month to the previous month.The CPI Ex Food & Energy excludes the so-called more volatile food and energy components to give a more accurate measurement of price pressures. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it.
Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.