Gold prices are showing some signs of stabilization after defending the $3,200 mark, despite a 3% drop on Monday. As markets await the highly anticipated U.S. Consumer Price Index (CPI) data, traders are positioning themselves for a potential catalyst that could influence the next move in the precious metal.
Gold Price Eyeing U.S. CPI Data for Potential Relief
Tuesday’s early trading saw gold showing tentative signs of recovery in Asia, as the U.S. Dollar (USD) pulled back after a strong performance driven by news of a potential U.S.-China trade truce. The trade deal, which emerged from weekend talks in Geneva, saw both sides agreeing to reduce tariffs. The U.S. will cut tariffs on Chinese imports from 145% to 30% over a 90-day negotiation period, while China will lower its tariffs from 125% to 10%.
This trade development spurred optimism in the markets, easing concerns over a U.S. recession and diminishing expectations of aggressive interest rate cuts by the Federal Reserve (Fed) this year. As a result, risk appetite surged, which in turn drove a rally in the USD, putting downward pressure on gold, traditionally viewed as a safe-haven asset.
In addition to the trade news, a ceasefire between India and Pakistan, along with optimism surrounding Russia-Ukraine peace talks, contributed to a decline in gold prices. However, as Tuesday’s trading unfolded, USD sellers regained control, and gold managed to stabilize as investors remained cautious about the longevity of the U.S.-China trade truce.
Further complicating the outlook, U.S. Trade Representative Jamieson Greer mentioned late Monday that while China has agreed to remove countermeasures, tariffs could be reinstated if the negotiations fail. With uncertainty lingering, traders have started to take profits on their USD long positions, which has helped cap gold’s downside for now.
The crucial factor that could determine gold’s next move is the upcoming release of the U.S. CPI data. Analysts expect the annual headline CPI to show a 2.4% increase in April, maintaining the same pace as March. Core CPI is projected to stay at 2.8% year-on-year.
Potential Market Reactions to U.S. CPI Data
Should the CPI figures show stronger-than-expected inflation, it could fuel a more hawkish stance from the Fed, strengthening the USD and pushing gold prices lower. A rise in the U.S. Dollar would likely weigh on gold, which does not offer any yield. Conversely, if the CPI data shows a slowdown in inflation, it could revive expectations for multiple Fed rate cuts, offering some support to gold prices.
However, any significant news about trade developments between the U.S. and its major trading partners, particularly the Trump administration’s approach, could overshadow the impact of CPI data on gold prices. Additionally, speeches from Fed policymakers will be closely scrutinized for hints on the central bank’s future actions, which could further influence gold’s trajectory.
Gold Price Technical Analysis: Potential for Downside or Rebound?
From a technical perspective, gold has recently broken below its 21-day Simple Moving Average (SMA), which stood at $3,313 on a daily closing basis as of Monday, opening the door for further downside potential. The 14-day Relative Strength Index (RSI) also turned bearish after closing below the midline for the first time since early April. Currently, the RSI is hovering near 49, with buyers attempting to regain control.
If the U.S. CPI data comes in hotter than expected, it could trigger a further decline in gold, potentially testing the 50-day SMA at $3,145. Other support levels are seen at the $3,100 mark and the April 10 low of $3,072.
However, if the CPI data comes in softer than anticipated, gold could recover some ground. The immediate resistance lies at the 21-day SMA, now at $3,311. A break above this level could pave the way for a test of the falling trendline resistance at $3,430. If gold manages to surpass that resistance, a move towards its record high of $3,500 could be on the horizon.
In conclusion, the upcoming U.S. CPI data is poised to play a pivotal role in determining gold’s near-term direction. Traders are closely watching the data, as it could either support a USD rally or give gold a chance to reclaim lost ground, depending on the inflation outlook.
Related topics:
- India Surpasses China in Gold Purchases, Buying 51% More in Three Months
- Qilu Bank Enhances Support for Small Businesses with Innovative Financial Tools
- Bitcoin Poised for a Surge Amid Gold’s Delivery Delays, Expert Claims
