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- Gold price is treading water near three-week lows of $1,976 early Wednesday.
- US CPI data fuelled the recovery in the US Dollar alongside the US Treasury bond yields.
- Gold price remains exposed to downside risks amid a bearish technical setup on the 4h chart.
- The Federal Reserve policy decision holds the key to a fresh Gold price directional impetus.
Gold price is challenging bullish commitments early Wednesday, sitting near the lowest level in three weeks of $1,976. Gold price is taking it easy following a good two-way business seen on the United States (US) Consumer Price Index (CPI) data release, as the focus now shifts toward the US Federal Reserve (Fed) policy announcements for a fresh trading impetus.
Federal Reserve decision to rock Gold price
Despite a pause in the recent sell-off, Gold price appears vulnerable in Wednesday’s trading so far. Investors refrain from placing any fresh bets on the bright metal ahead of key event risk of this week, the Fed interest rate decision and policy outlook, especially after the US CPI inflation report revived bets for the Fed maintaining interest rates higher for longer.
The CPI edged up 0.1% last month after being unchanged in October, the Labor Department’s Bureau of Labor Statistics (BLS) showed on Tuesday. Annually, the CPI increased 3.1% in November after rising 3.2% in October. Although the US CPI numbers came in line with the market expectations, the details of the report showed an uptick in the shelter index and used car and trucks index, which helped push back against the market’s pricing of Fed rate cuts next year.
In an initial reaction to the US CPI data release, the US Dollar extended its intraday decline but quickly regained footing alongside the US Treasury bond yields after investors digested the data and its potential implications ahead of Wednesday’s Fed decision. Gold price dropped below $1,980, having briefly spiked to $1,997 in a knee-jerk reaction to the US CPI report.
Looking ahead, all eyes stay focused on the upcoming Fed decision, with the US central bank widely expected to hold rates at 5.25%-5.50%. However, comments from Fed Chair Jerome Powell and the so-called Dot Plot chart are likely to hold the key, as they could shed more light on the Fed’s monetary policy outlook amid expectations of rate cuts in the first half of 2024. Markets are currently pricing about 43% odds of a March Fed rate cut while for May, the probability stands at about 75%.
Should Powell and his colleagues dismiss expectations of a Fed rate cut in the first quarter of 2024, acknowledging elevated inflation level and still tight labor market conditions, the non-interest-bearing Gold price is likely to see a renewed sell-off, as the US Dollar demand returns. In contrast, Gold price could stage a solid recovery if the Fed’s projections affirm aggressive rate-cut expectations and smash the Greenback across the board.
In the meantime, the risk-averse market environment in the lead-up to the Fed event will keep the US Dollar underpinned, checking the upside attempts in Gold price.
Gold price technical analysis: Daily chart
As observed on the daily chart, Gold price remains on track to test the 50-day Simple Moving Average (SMA) at $1,970 after finding a strong foothold below the multi-week troughs of $1,976.
The 14-day Relative Strength Index (RSI) indicator inches lower while below the 50 level, backing the case for further downside.
Should the bearish momentum regain traction, the flattish 200-day SMA at $1,953 will be threatened, below which a test of the 100-day SMA at $1,941 cannot be ruled out.
On the other hand, a sustained recovery will need acceptance above the 21-day SMA at $2,006 on a daily candlestick closing basis.
Gold buyers will then target the November 27 high of $2,018 en route to the $2,040 supply zone.
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