Gold price recovers swiftly as investors ignore sticky US Inflation data

• Gold price extends recovery to near $2,040 as investors are optimistic about Fed rate cuts.
• Investors ignore United States’ high consumer inflation data.
• Fed policymakers reiterate a restrictive monetary policy stance to achieve price stability.

Gold price (XAU/USD) delivers a swift recovery as investors are confident about an interest rate cut by the Federal Reserve (Fed) at its monetary policy meeting on March 20 – such a move would support non-yielding assets such as Gold. The probabilities of an early interest rate cut are assessed as firmer despite consumer price inflation in the United States remaining stubbornly high in December, amid a significant increase in rental prices and healthcare costs. 

While market participants continue to commit funds toward Gold amid optimism over early rate cuts, Fed policymakers will stick to a restrictive interest rate stance as price pressures in addition to the required rate of 2% are highly sticky, due mainly to stable labor market conditions. Fed policymakers have been reiterating that a lot of work has yet to be done in order to gain confidence that the underlying inflation will return to 2% in a sustainable manner.

Bank of Chicago Federal Reserve President Austan Goolsbee, on Thursday, stressed  a data-dependent approach and said that there were weeks and months of data to come, to help guide when and how much rates should be reduced. Cleveland Fed President Loretta Mester said she needed more evidence to confirm inflation declining towards 2% in a timely manner before jumping on the bandwagon of rate-cut discussions.

Daily Digest Market Movers: Gold price recovers entire losses while US Dollar falls back

• Gold price moves sharply higher, close to $2,040 as investors remain optimistic about a rate cut by the Federal Reserve in March despite a healthy increase in the headline inflation and sticky core CPI data for December.
• The annual core inflation rate decelerated slightly to 3.9% (from 4.0% in November) while headline CPI rose significantly to 3.4% due to elevated rentals and healthcare costs. Gasoline and food prices were up at a moderate pace of 0.2%.
• According to the CME FedWatch tool, chances lean towards an interest rate cut by 25 basis points (bps) in March, with a probability of above 66%.
• Investors are ignoring the fact that US labor market conditions are still healthy and the last mile in achieving price stability is turning out extremely stubborn. This could allow Fed policymakers to maintain arguments towards keeping interest rates elevated, at least until the second quarter ends.
• Stubbornly higher US inflation has set a hawkish undertone for the first interest rate policy of 2024 on January 31. 
• The Fed is widely anticipated to keep interest rates unchanged in the range of 5.25-5.50% for the fourth straight time, but the outlook for interest rates in March is expected to remain slightly hawkish. 
• After Fed policymakers: Raphael Bostic and John Williams, Cleveland Fed President Loretta Mester said March is probably too early for an interest rate cut decision as the Fed needs to see more evidence to be confident that inflation is progressively declining towards 2%. 
• Loretta Mester added that there is more work to do including the continued maintenance of a restrictive monetary policy. She further added that goods, housing and shelter costs need to ease further along with a slowdown in wage growth.
• The US Dollar Index (DXY) struggles for a firm-footing as investors are not ready to ditch support for rate cuts in March. 
• The FX domain will see more action ahead as the US PPI for December is due to release at 13:30 GMT. 
• Monthly headline and core PPI are expected to expand by 0.1% and 0.2% respectively against a flat growth in November. The annual headline PPI rose strongly by 1.3% versus. previous growth of 0.9%. On the contrary, the core PPI decelerated slightly ro 1.9% against 2.0% growth in November.

Technical Analysis: Gold price climbs to near $2,040

Gold price delivers a V-shape recovery after printing a fresh three-week low below $2,015. The 50-day Exponential Moving Average (EMA) has acted as a strong support for the Gold price bulls. The precious metal has managed to climb slightly above the 20-day EMA, which trades around $2,036. While the upside bias is intact, a bullish momentum has faded as the 14-period Relative Strength Index (RSI) is oscillating near 50.00.