Gold price treads with caution ahead of US PPI, Retail Sales

• Gold price falls amid caution from investors ahead of US Retail Sales, PPI data for February.
• Higher US bond yields weigh on the Gold price.
• Growth for both monthly and annual Core PPI is forecasted to have softened.

Gold price (XAU/USD) exhibits a subdued performance in Thursday’s European session ahead of the United States Producer Price Index (PPI) and Retail Sales data for February, which will be published at 12:30 GMT. The precious metal has come under pressure after Wednesday’s strong recovery move due to firm US Dollar (USD) and bond yields amid uncertainty ahead of crucial US data that could influence the inflation outlook.

The US February’s inflation data released on Tuesday came in hotter-than-expected. A similar trend from the PPI data and strong Retail Sales would deepen uncertainty over Federal Reserve (Fed) rate cut expectations for the June policy meeting. This could support yields on Treasury bonds, increasing the opportunity cost of holding non-yielding assets such as Gold.

10-year US Treasury yields jumped to 4.2% and the US Dollar Index (DXY) is slightly up at 102.85 ahead of the crucial data. Going forward, the major trigger for these assets will be the Fed’s interest rate decision, and the new dot plot, which provides interest rates projections. The last dot plot, released in the December meeting, indicated three rate cuts this year.

Daily digest market movers: Gold price drops ahead of US data

• Gold price falls to $2,170, pressured by higher US bond yields and firm US Dollar amid uncertainty ahead of the United States PPI and Retail Sales data for February.
• Annual core PPI, which strips off volatile food and energy prices, is forecasted to have softened to 1.9% from 2.0% in January. The monthly underlying inflation data is projected to have grown at a slower pace of 0.2% against the prior reading of 0.5%. 
• For headline figures, economists expect that the monthly PPI rose at a steady pace of 0.3%. The annual PPI is anticipated to have accelerated to 1.1% from 0.9% in January. The PPI data shows the pace at which producers have increased or decreased prices of goods and services at factory gates. 
• Meanwhile, the US Census Bureau is expected to show that monthly Retail Sales data grew by 0.8% after contracting at the same pace in January. It is expected that robust demand for automobiles and higher sales at gasoline stations boosted Retail Sales. Investors closely track the Retail Sales data to get insights into household spending, one of the main growth drivers of the US economy. 
• Hot PPI and Retail Sales data would indicate a stubborn inflation outlook, which will allow Federal Reserve policymakers to hold interest rates higher for a longer period. This will improve the US Dollar’s appeal, weighing on Gold. On the contrary, soft figures would signal easing inflation pressures, increasing expectations for the Federal Reserve (Fed) to reduce interest rates in the June policy meeting.
• The CME FedWatch tool shows that chances for a rate cut in June have slightly improved to 69%, from the 65% registered after the release of the stubborn CPI data.

Technical Analysis: Gold price falls slightly to $2,170

Gold price continues to oscillate inside Tuesday’s trading range between $2,154 and $2,180. The precious metal is slowly entering into a non-directional trend in which volatility gets sharply contracted. Earlier, the yellow metal dropped after printing a fresh all-time high near $2,195, which coincides with the 1.27% Fibonacci extension level (plotted from December 4 high near $2,145 to December 13 low at $1,973.3).

On the downside, December 4 high near $2,145 and December 28 high at $2,088 will act as major support levels.

The 14-Relative Strength Index (RSI) retraces from its peak near 84.50, although the upside momentum is still active.