XAU/USD’s Trend Hinges on US Inflation Data. What Now?

GOLD PRICE OUTLOOK

• Gold prices have trended lower in 2024 after a strong performance late last year
• Traders seem reluctant to take on new bullish positions before having more clarity on the Fed’s monetary policy outlook
• The December U.S. inflation report will steal the spotlight later this week

Most Read: US Dollar Reverses Lower Before US CPI, Setups on EUR/USD, GBP/USD, USD/JPY

Gold prices rallied strongly through late December, but have trended lower in early January, with traders reluctant to take on new bullish positions for fears of a larger bearish reversal should deep interest rate cuts projected for 2024 fail to materialize.

Although the FOMC has signaled that it would cut borrowing costs later this year, easing expectations seems extreme for an economy that is nowhere near a recession and still struggling with sticky inflation. If markets started to unwind dovish monetary policy bets, bullion could suffer.

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FOMC MEETING PROBABILITIES

Source: FedWatch Tool

For insights into the Fed’s path, which is vital for precious metals, it is important to keep a close eye on a high-impact event later this week: the release of the December U.S. inflation report. While the yearly reading for the core CPI indicator is seen moderating slightly, the headline gauge is forecast to reaccelerate, creating a headache for policymakers.

Upcoming US Inflation Data

Source: DailyFX Economic Calendar

In terms of possible outcomes, gold needs weak inflation numbers to have a better chance of resuming its upward journey. An in-line or above forecast CPI report could trigger a hawkish repricing of the central bank’s policy trajectory, reinforcing the metal’s recent downward correction.

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GOLD PRICE TECHNICAL ANALYSIS

Gold prices (XAU/USD) fell on Monday, extending losses after breaching a key support band at $2,050/ $2,045 last week. Prolonged trading beneath this area could empower sellers to push prices towards the 50-day simple moving average located near $2,010, with further weakness shifting attention to $1,990.

Conversely, if buyers regain control and spark a rebound, resistance looms at $2,045-$2,050. While reclaiming this area may be challenging for the bulls, a breakout could pave the way for a move toward the late December peak near $2,085. Continued strength could send gold toward its record near $2,150.

GOLD PRICE TECHNICAL CHART

Gold Price Chart Created Using TradingView