Gold price remains on backfoot amid dwindling Fed rate-cut expectations

• Gold price trades in a tight range below $2,000 as investors now see the Fed reducing key rate in June.
• The US Dollar remains subdued as the focus shifts to US Retail Sales data.
• Investors anticipate that Retail Sales contracted by 0.1% in January.

Gold price (XAU/USD) consolidates in a tight range ahead of the monthly United Sales Retail Sales data for January. The consensus shows a moderate decline in sales as households spent heavily in December amid the festive season, decline in gasoline prices, and lower auto sales. 

The impact of lower Retail Sales data is expected to remain limited on the US Dollar as cooling expectations of aggressive rate cuts by the Federal Reserve (Fed) will continue to act as a cushion in the broader term. The US Dollar tends to attract high foreign inflows on expectations that the Fed will maintain a hawkish narrative for a longer period.

While investors are not expecting a rate-cut move by the Fed before June following stubborn inflation data, US Treasury Secretary Janet Yellen and Chicago Federal Reserve Bank President Austan Goolsbee see the one-time bump as incapable of impacting the longer-term trend in inflation declining towards the 2% target. Austan Goolsbee warned that higher interest rates for a longer period could result in a significant blow to employment, which is one of the Fed’s dual mandates.

Daily Digest Market Movers: Gold trades sideways ahead of US Retail Sales data

• Gold prices struggle to find buyers as expectations for a rate-cut move by the Federal Reserve in May have cooled down.
• Investors don’t see the Fed reducing the benchmark rate before June as price pressures in the United States economy were surprisingly stubborn in January.
• The US inflation turned out persistent despite the Fed holding interest rates unchanged in the range of 5.25-5.50% for a longer period.
• Market reaction to non-yielding assets and US equities was negative after higher-than-expected US CPI inflation was reported in January. However, US Treasury Secretary Janet Yellen advised to focus on a longer trend, which clearly indicates that inflation is moving decisively down. 
• In her speech at the Detroit Economic Club on Wednesday, Janet Yellen said extensive consideration of a one-time blip in the inflation data is a tremendous mistake. 
• Yellen added that our focus should be on the longer-term decline in inflation, resilient economy, and rising wages not on minor fluctuations.
• Similarly, Chicago Fed Bank President Austan Goolsbee said on Wednesday that inflation is on track to the central bank’s target of 2% despite remaining a bit higher for a few months. 
• Austan Goolsbee added that the outlook of interest rates is tied to the Fed’s confidence in inflation declining to 2% but a longer stay with restrictive monetary policy stance could impact the employment side of the Fed’s mandate. 
• On the contrary, Fed Vice Chair Michael Barr showed uncertainty over achieving a ‘soft landing’ as recent inflation data shows that the path towards price stability would be bumpy.
• Meanwhile, the US Dollar Index (DXY) remains subdued in the European session on Thursday ahead of the US monthly Retail Sales for January, which will be published at 13:30 GMT.
• Investors anticipate that Retail Sales were lower by 0.1% against a 0.6% increase in December. This could be the outcome of higher household spending in December due to the festive mood.
• The Retail Sales data represents trends in households’ spending, which provides cues over the inflation outlook. Therefore, a decline in Retail Sales could impact the US Dollar.

Technical Analysis: Gold price juggles above $1,990

Gold price trades in a tight range, slightly above the immediate support of $1,990. The broader outlook for the precious metal has turned negative after breaking below the psychological support of $2,000. Also, the 20 and 50-day Exponential Moving Averages (EMAs) are on the verge of delivering a bearish crossover. The 200-day EMA near $1,970 is expected to become a major support for the Gold price bulls.

The 14-period Relative Strength Index (RSI) has established below 40.00, indicating more downside amid an absence of divergence and oversold signals.