Gold price grinds between Fed’s hawkish narrative, Middle East tensions

• Gold price struggles to deliver a decisive move as investors are uncertain about Fed rate cuts.
• Investors shifted focus toward the US inflation data, which will be published next week.
• Middle East tensions continue to offer growth to safe-haven Gold.

Gold price (XAU/USD) stays inside Thursday’s trading range as investors shift focus toward the United States Consumer Price Index (CPI) data for January, which will be released on Tuesday. The inflation data will provide more cues about when the Federal Reserve (Fed) could start reducing interest rates. The sooner interest rates fall, the better it will be for Gold price, which will lower the opportunity cost of holding a non-yielding asset. 

As Fed policymakers consistently emphasize keeping interest rates restricted until they get more evidence that inflation will sustainably return to 2% and labor market conditions remain upbeat, investors are losing confidence in the Fed easing interest rates from May. The CME FedWatch tool shows that the chances favoring a rate cut by 25 basis points (bps) in May have fallen to 51%.

When considering cutting interest rates, the Fed consistently observes its dual mandate of easing price pressures and full employment. US labor market conditions are upbeat as weekly jobless claims are consistently declining. For the week ending February 2, individuals claiming jobless benefits for the first time were at 218K, lower than expectations of 220K and the former release of 228K. This suggests less need to lower interest rates and stimulate growth. 

As market participants are losing confidence in the Fed easing interest rates from May, the broader appeal of the US Dollar is improving. The US Dollar is negatively correlated to Gold price and tends to attract higher foreign outflows if the Fed maintains a hawkish stance (higher interest rates) for longer.

Daily Digest Market Movers: Gold price trades lacklustre as focus shifts to US CPI

• Gold price remains largely within the $2,020-$2,040 range from the past three trading sessions as Federal Reserve (Fed) policymakers have not declared a timeframe for rate cuts.
• Fed policymakers are holding back from providing a concrete time for rate cuts as they are still unconvinced that inflation will come down sustainably to the 2% target.
• The Fed needs to see price pressures easing for months to be confident about achieving price stability.
• On Thursday, Boston Federal Reserve Bank President Susan Collins reiterated the need to ensure strong labor growth and progress in inflation towards 2% before shifting to an expansionary policy stance.
• Susan Collins warned about risks of inflation remaining stalled due to strong economic growth despite being optimistic about easing price pressures.
• Richmond Federal Reserve Bank President Thomas Barkin advised the central bank to take some time before easing interest rates as they could feed price pressures again.
• While uncertainty over Fed rate-cut timing is capping the upside in the Gold price, deepening Middle East tensions are acting as a tailwind.
• The outlook for safe-haven assets such as Gold improves in times of geopolitical uncertainty.
• Tensions in the Middle East have deepened as Israel’s Prime Minister Benjamin Netanyahu has rejected the ceasefire proposal due to unacceptable terms for a truce. The Israeli leader said the complete destruction of Hamas is only a few months away.
• Meanwhile, the US Dollar Index (DXY) trades back and forth in a narrow range above 104.00 as investors await the United States inflation data for January, which will be released on Tuesday, February 13.
• The appeal for the US Dollar could improve further if the inflation data turns out persistent. A stubborn inflation data would allow the Fed to keep interest rates higher for longer. This would lead to higher foreign capital inflows for the US Dollar.

Technical Analysis: Gold price trades inside Thursday’s range

Gold price is struck inside Thursday’s range of $2,020-2,039 in Friday’s London session. An inability to deliver a decisive move indicates a sharp contraction in volatility. 

The Gold price has been forming a Symmetrical Triangle chart pattern since December on a daily time frame, demonstrating indecisiveness among market participants. The downward and upward-sloping trendline borders of the aforementioned pattern are plotted from December 28 high at $2,088 and December 13 low at $1,973, respectively. The 50-day EMA at $2,023 continues to cushion the Gold price bulls.