Gold price consolidates as investors await US inflation report

• Gold price trades directionless as investors shift focus to US inflation data.
• Investors worry that upside risks to headline CPI could elevate the likelihood of a final interest rate hike from the Fed.
• The US economy may avoid recession but higher interest rates could dampen economic prospects.

Gold price (XAU/USD) struggles for a decisive move as investors turn cautious ahead of the US Consumer Price Index (CPI) data for August. The precious metal remains on tenterhooks as market participants see headline inflation rebounding due to a strong uptick in gasoline prices. Market participants worry that upside risks to headline inflation could elevate the likelihood of a final interest rate hike from the Federal Reserve (Fed) in the rest of the year.

The US economy is expected to face the wrath of strict monetary policy as the Fed is widely expected to keep interest rates higher for a longer period. US labor growth is stable but could come under pressure as firms are focusing on achieving efficiency by controlling costs. Apart from the inflation data, the Gold price would demonstrate a power-pack action after the interest rate decision by the European Central Bank (ECB) on Thursday.

Daily Digest Market Movers: Gold price trades sideways ahead of US CPI

• Gold price remains directionless around $1,910.00 as investors await US inflation data for August, which will be published at 12:30 GMT.
• US headline CPI, on an annual basis, is seen rising to 3.6% against July’s reading of 3.2%. Core CPI, which strips off volatile food and energy prices, is seen decelerating to 4.3% against 4.7% recorded a month ago.
• Monthly headline and core inflation are seen expanding by 0.6% and 0.2%, respectively. A strong rebound in gasoline prices has triggered upside risks to headline inflation. Global Oil prices have rallied as much as 40% from May as OPEC sees rising demand for oil in the coming months.
• Generally, markets majorly focus on core inflation. Still, Federal Reserve policymakers would not ignore a rebound in headline CPI as it would impact the real income of households and may propel prices of goods and services at factory gates.
• Discussions about one more interest rate increase in the rest of the year could accelerate if higher energy prices increase pain for households.
• However, the softening of core inflation beyond expectations could encourage the Fed to announce a pause to the historically aggressive rate-tightening spell.
• As per the CME Group Fedwatch Tool, traders see a 93% chance for interest rates to remain unchanged at 5.25%-5.50% in September. For the rest of the year, traders anticipate almost a 55% chance for the Fed to keep the monetary policy unchanged.
• Investors remain worried about US equities due to the upside risks of higher interest rates to corporate performance, triggering a risk-off profile.
• Meanwhile, Goldman Sachs CEO David Solomon said on Tuesday that the US economy is likely to avoid a significant recession, but warned that inflation would be more persistent than market participants currently expect, as reported by Reuters.
• The likelihood of a soft landing is high as inflation is coming down while the labor market is stable. However, inflationary pressures in excess of the desired rate of 2% would be the hardest nut to crack.
• The US Dollar Index (DXY) sees less volatility above the immediate support of 104.40 ahead of the inflation data. Meanwhile, 10-year US Treasury yields rose sharply to 4.3%.
• US consumer inflation data will be followed by Producer Price Index (PPI) and Retail Sales data, which are scheduled for Thursday.
• Gold price is expected to deliver a power-pack action after the announcement of the interest rate decision by the European Central Bank (ECB) on Thursday. The ECB is widely expected to keep the main refinancing operations rate at 4.25% due to easing price pressures and rising risks of an economic slowdown.

Technical Analysis: Gold price juggles around $1,910

Gold price trades back and forth above the round-level support of $1,900.00 as investors remain sidelined ahead of the inflation data. The precious metal auctions inside the previous day’s range, demonstrate a sheer contraction in volatility. The yellow metal continues to find support from the 200-day Exponential Moving Average (EMA), which trades around $1,910.00, while the 20-day EMA around $1,921.00 continues to act as a barricade for Gold price.