Gold Price Dynamics: Navigating Market Sentiments and Monetary Policy Anticipations

During the Asian trading session on Tuesday, the GOLD price (XAU/USD) experienced a modest recovery, distancing itself from the three-week low of approximately $1,975-$1,976 reached the previous day.

This slight increase does not strongly indicate bullish sentiment as market participants are poised for the forthcoming US consumer inflation data, which could shed light on the Federal Reserve’s (Fed) potential rate cut timeline. This development is anticipated to significantly influence the US Dollar (USD) and consequently affect the precious metal’s valuation.

The market’s attention is predominantly fixated on the Federal Open Market Committee’s (FOMC) two-day monetary policy meeting set for Wednesday. The anticipated “dot plot” is expected to provide insights into the Fed’s short-term policy direction, potentially guiding the forthcoming trajectory of Gold’s value, which typically does not yield interest.

Current geopolitical tensions, particularly the escalation between the US and Iran-backed Houthi rebels in Yemen, combined with a slight decline in the USD, are providing temporary support to Gold’s status as a safe-haven asset.

A US defense official reported on Tuesday that the Houthi rebels launched a land-based cruise missile, an event contributing to the bolstering of Gold’s appeal as a safe haven. Meanwhile, the strong US employment data released on Friday led to speculations of a delay in the Fed’s interest rate cuts, potentially not commencing until May of the following year. This situation poses a challenge to Gold’s value.

A survey by the New York Fed on Monday indicated a decrease in consumer inflation expectations to 3.4% for the next year, the lowest forecast since April 2021. This data has generated optimism that inflation may continue to slow down without plunging the economy into recession, causing investors to reconsider their expectations for an initial Fed rate cut in March 2024.

Market participants largely believe that the US central bank will soon end its policy tightening and may start easing its monetary policy in the first half of the next year. According to the CME Group’s FedWatch Tool, there’s still a significant probability of a rate cut by the Fed in March and a higher likelihood in May 2024.

However, this speculation has not significantly helped the US Dollar to build on its post-Non-Farm Payrolls (NFP) gains, instead offering support to GOLD , although investors remain cautious ahead of the US inflation data.

The headline Consumer Price Index (CPI) is anticipated to show a 0.1% increase for November, with the annual rate expected to decline to 3.1%. The core CPI is predicted to rise slightly on a monthly basis and remain stable at a 4.0% year-over-year rate. Following these releases, focus will shift to the outcome of the FOMC meeting.

Gold’s price managed to reach the anticipated target of $1,977.46, aligning with the 50% Fibonacci correction level of the bullish trend evident on the chart. However, the downward pressure exerted by the EMA50 suggests a potential decline towards the next correctional level at $1,938.00.

Consequently, a bearish trend is expected in the near term, contingent on the market’s ability to surpass the aforementioned levels. Failure to achieve this break might lead to intraday gains, beginning with a test of the $2,016.90 mark before determining a clear direction.

The anticipated trading range for today lies between the support level of $1,960.00 and the resistance level of $1,995.00.