Gold price recovers further from multi-week low, upside potential seems limited

• Gold price attracts some buyers on Tuesday and draws support from a weaker US Dollar.
• A fall in consumer inflation expectations boosts Fed rate-cut bets and undermines the buck.
• Elevated US bond yields and a positive risk tone cap gains ahead of the US CPI on Thursday.

Gold price (XAU/USD) gains some positive traction during the Asian session on Tuesday and moves away from a near three-week low, around the $2,017-2,016 region touched the previous day. A fall in US Consumer Inflation Expectations boosts market bets that the Federal Reserve (Fed) may start cutting interest rates as early as March. This keeps the US Dollar (USD) bulls on the defensive for the second successive day and turns out to be a key factor benefitting the non-yielding yellow metal.

Investors, however, have been scaling back their expectations for a more aggressive Fed policy easing in the wake of hopes for a soft landing for the US economy, bolstered by a still-resilient labor market. Adding to this, the recent hawkish remarks by several Fed officials have raised uncertainty about the possibility of early interest rate cuts, which remains supportive of elevated US Treasury bond yields. This should help limit losses for the USD and cap any further gains for the Gold price.

Apart from this, a positive trading sentiment around the Asian equity markets might further contribute to keeping a lid on the safe-haven XAU/USD. Traders might also refrain from placing aggressive bets and prefer to wait for the release of the latest US consumer inflation figures on Thursday for cues about the Fed's future policy decision. This, in turn, will play a key role in influencing the USD price dynamics and provide a fresh directional impetus to the Gold price.

Daily Digest Market Movers: Gold price benefits from Fed easing bets, modest USD weakness

• The New York Federal Reserve said in a report on Monday that US consumers' projection of inflation over the short run fell to the lowest level in nearly three years in December, which undermines the US Dollar and benefits the Gold price.
• Inflation one year from now is expected to be at 3%, marking the lowest reading since January 2021, while inflation three years from now is seen at 2.6% and price pressures five years ahead were at 2.5% versus 2.7% in November.
• The data reaffirms expectations for an imminent shift in the Federal Reserve's policy stance, though investors continue scaling back their expectations for more aggressive policy easing in the wake of a still-resilient US economy.
• Atlanta Fed President Raphael Bostic noted that inflation has declined more than expected and that the US central bank still needs to give tight policy time to work on cooling off inflation. Bostic sees two 25 bps cuts by year-end 2024.
• Fed Governor Michelle Bowman said that the current policy stance appears sufficiently restrictive and that inflation could fall further with the policy rate held steady for some time, though the upside inflation risks remain.
• This raises uncertainty over the possibility of early interest rate cuts by the Fed, which assist the yield on the benchmark 10-year US government bond to hold steady above the 4.0% threshold and might cap the non-yielding yellow metal.
• The market focus, meanwhile, remains glued to the US consumer inflation figures on Thursday, which should help determine the next leg of a directional move for the XAU/USD.

Technical Analysis: Gold price might struggle to capitalize on the modest intraday positive move

From a technical perspective, any subsequent move up is likely to confront some resistance near the $2,040 horizontal zone, above which the Gold price could aim to retest Friday's swing high, around the $2,063-2,064 region. The next relevant hurdle is pegged near the $2,077 area, which if cleared decisively will negate any near-term negative outlook and allow bulls to reclaim the $2,100 round figure.

On the flip side, the overnight swing low, around the $2,017-2016 region, now seems to protect the immediate downside ahead of the 50-day Simple Moving Average (SMA), currently near the $2,012-2,011 area. This is followed by the $2,000 psychological mark, below which the Gold price could accelerate the slide towards the $1,988-1,986 intermediate support en route to the December low, around the $1,973 area and the $1,962 confluence, comprising the 100- and the 200-day SMAs.