Gold price faces pressure ahead of US Inflation

• Gold price dips slightly as investors await US Inflation data for fresh guidance.
• US bond yields face pressure as safe-haven demand eases ahead of the inflation report.
• Market expectations for the Fed reducing interest rates in June remain firm.

Gold price (XAU/USD) falls slightly in Tuesday’s European session. The yellow metal is broadly stuck in a tight range around $2,180 as investors await the United States Consumer Price Index (CPI) data for February, which will be published at 12:30 GMT, for fresh guidance. 

The precious metal exhibits some pressure ahead of the inflation data. Strong CPI data could lead to a decline in market expectations for Federal Reserve (Fed) rate cuts in the June policy meeting. This will increase of opportunity cost of holding investments in non-yielding assets, such as Gold. Meanwhile, softer-than-expected data could help Gold prices advance further. 

The 10-year US Treasury yields fell to 4.09% due to cheerful market sentiment. However, a hotter-than-expected inflation report could increase yields on interest-bearing bonds. 

The US Dollar Index (DXY), which closely tracks the Greenback’s value against six major currencies, remains steady near 102.85. The USD index oscillates inside Monday’s trading range as investors stay on the sidelines ahead of inflation data. A sticky inflation report could improve the US Dollar's appeal as it will allow the Fed to keep interest rates higher for a longer period.

Daily digest market movers: Gold, bond yields drop on weak safe-haven appeal

Gold price falls slightly to $2,180 as safe-haven demand eases on improved market sentiment. The precious metal trades broadly sideways after refreshing all-time highs slightly below the round-level resistance of $2,200. The yellow metal is expected to witness a decisive break after the release of the United States consumer price inflation data, which will provide more guidance on the interest rate outlook.

Monthly headline CPI is expected to increase 0.4% from 0.3% in January. The monthly core CPI, which excludes volatile food and energy prices, is forecasted to have grown at a slower pace of 0.3% against the prior reading of 0.4%. Annual headline inflation is anticipated to have grown at a steady pace of 3.1%, while the core CPI is forecast to soften to 3.7% from 3.9% in the same period.

Hotter-than-expected inflation data would allow Federal Reserve policymakers to avoid rushing for rate cuts. This would indicate that a victory over inflation is not in sight,  deepening the uncertainty over the interest rate cuts in the first half of this year as policymakers could lean towards keeping interest rates higher.

Last week, Fed Chair Jerome Powell said in his Congressional testimony that it would be inappropriate to start lowering interest rates before gaining conviction that inflation will sustainably return to the 2% target. However, Powell also said that the central bank is not far from gaining that conviction.

Currently, market expectations for the Fed reducing interest rates in the June meeting remain firm as labor market conditions are not overly tight. The US Nonfarm Payrolls (NFP) report for February showed slower wage growth and a higher Unemployment Rate, though hiring remains robust. The CME FedWatch tool shows that there is a 72% chance that the Fed will cut interest rates in June.

Technical Analysis: Gold price drops as oscillators turn overbought

Gold price consolidates in a tight range, between $2,170 and all-time highs of $2,195, as investors await the US inflation data. The nine-day winning streak of the Gold price halts amid uncertainty ahead of the inflation report for February. The divergence between the 20-day Exponential Moving Average (EMA) at $2,097 and the Gold price is waning. The asset tends to face a mean-reversion move after a wide divergence, which results in a price or a time correction.

On the downside, December 4 high near $2,145 and December 28 high at $2,088 will act as major support levels.

The 14-period Relative Strength Index (RSI) reaches the overbought territory at 84.50, pointing to some correction ahead.