Gold price rises as appeal for safe-haven assets fades ahead of US inflation data

• Gold price recovers while the US Dollar faces pressure ahead of US CPI data.
• Investors seem confident about the Fed reducing interest rates in March.
• Fed policymakers continue to favor a restrictive policy stance.

Gold price (XAU/USD) advances on Thursday as safe-haven assets face a sharp sell-off despite uncertainty ahead of the United States Consumer Price Index (CPI) data, which will be published at 13:30 GMT. Bullions enjoy significant demand as investors remain confident over the Federal Reserve (Fed) reducing interest rates in March to avoid the consequences of over-tightening.

The headline inflation is expected to increase modestly, while the core CPI is seen softening further due to a decline in the prices of used cars. The ISM Price Paid Index for the Manufacturing sector, a key leading indicator of price pressures, contracted significantly in December. Investors seem to ignore that Fed policymakers continue to lean towards keeping a restrictive stance for a longer period, denying the likelihood of early rate cuts.

Atlanta Fed Bank President Raphael Bostic and New York Fed President John Williams supported the idea of keeping interest rates higher as they said more work is needed to get inflation back to the 2% target. John Williams said it would only be appropriate to unwind the current restrictive monetary policy stance when the Fed is confident that inflation is moving toward 2% on a sustained basis.

Daily digest market movers: Gold price recovers as US Dollar, yields fall

• Gold price climbs swiftly to near $2,030 as safe-haven assets have come under pressure ahead of the United States inflation data for December.
• The correction in the US Dollar Index (DXY) has extended to near 102.20, and the 10-year US Treasury yields have stabilized below 4.0%.
• The release of the US inflation data will provide cues about the likely monetary policy action for January’s meeting.
• Investors see headline inflation rising 3.2% annually, up from 3.1% in November. Core inflation, which excludes volatile food and energy prices, is forecasted to decline tof 3.8% against the former reading of 4.0%.
• Economists are anticipating that monthly headline and core inflation grew by 0.2% and 0.3%, respectively.
• The Federal Reserve (Fed) is highly expected to keep interest rates unchanged in the range of 5.25%-5.50% in January’s monetary policy meeting for the fourth time in a row. Guidance about upcoming interest rate cuts will be of utmost importance.
• In the latest projections, Fed policymakers said interest rates could come down by 75 basis points (bps) this year.
• As per the CME Fedwatch tool, chances in favour of a 25 bp rate cut in March have rebounded to 67%.
• Bets supporting an interest rate cut by the Fed in March could decline sharply if the US inflation report comes in hotter than projected. Also, projections for the first cut in interest rates could shift to May’s monetary policy meeting.
• A sticky or higher inflation data will offer an argument to Fed policymakers to keep interest rates high for the entire first half of this year.
• After the release of the US Inflation data, investors will shift focus towards the Producer Price Index (PPI) data for December, which will be published on Friday.
• On US-China relations, US Treasury Secretary Janet Yellen said former Republican President Donald Trump’s plan to levy universal 10% tariffs on all imports would escalate costs for consumers. She added that a review of tariffs on Chinese imports is highly needed.

Technical Analysis: Gold price struggles to climb above 20-EMA

Gold price rebounds strongly after a decent correction on Wednesday as investors seem certain about an interest rate cut from the Fed in March. The precious metal manages to attain a firm footing, but struggles to extend its recovery above the 20-day Exponential Moving Average (EMA) at $2,037. The 14-period Relative Strength Index (RSI) oscillates around 50.00, which indicates that investors await a potential trigger for further action.