Gold price extends post-US CPI bounce from one-month low, 50-day SMA

• Gold price builds on the overnight bounce from a one-month low amid a softer USD.
• Despite a slightly hot US CPI, bets for a March Fed rate cut undermine the Greenback.
• Geopolitical risks and China’s economic woes further benefit the safe-haven XAU/USD.

Gold price (XAU/USD) attracts some buyers for the second successive day on Friday and builds on the overnight bounce from a one-month low, around the $2,013 region, representing the 50-day Simple Moving Average (SMA). The precious metal, however, remains confined in a multi-day-old trading range, warranting some caution for bullish traders amid the uncertainty over the Federal Reserve's (Fed) rate-cut path.

Data released on Thursday showed consumer prices in the United States (US) increased more than expected in December. This, along with hawkish remarks from Fed officials, fuelled speculations that interest rates could stay higher for longer. The markets, however, are pricing in a greater chance of a rate cut in March, which continues to undermine the US Dollar (USD) and lends support to the non-yielding Gold price.

Apart from this, geopolitical risks stemming from the Israel-Hamas war and persistent worries about a slow economic recovery in China further seem to benefit the safe-haven XAU/USD. That said, the aforementioned fundamental backdrop makes it prudent to wait for strong follow-through buying before confirming that the Gold price has formed a near-term bottom and positioning for any meaningful appreciating move.

Daily Digest Market Movers: Gold price benefits from a softer USD, safe-haven demand

• The mixed US consumer inflation figures raised expectations that the Federal Reserve could delay a much-anticipated rate cut in March and dragged the Gold price to a one-month low on Thursday.
• The headline US CPI accelerated from the 3.1% YoY rate to 3.4% in December, while the core gauge (excluding volatile food and energy prices) registered its smallest yearly gains since May 2021.
• Cleveland Fed President Loretta Mester commented on the latest CPI figures and said that it would likely be too soon for the US central bank to cut its interest rates at the March policy meeting.
• Adding to this, Richmond Fed chief Tom Barkin noted that the central bank needs to be convinced that inflation is headed to target and will be open to lowering rates once inflation is on track to 2%.
• Separately, Chicago Fed President Austan Goolsbee said that the central bank is still on a comfortable path forward on inflation and will have to evaluate policy restrictiveness as inflation continues to decline.
• According to the CME group's FedWatch Tool, the markets are still pricing in over a 65% probability of a rate cut in March, which is seen acting as a tailwind for the non-yielding yellow metal.
• The yield on the benchmark 10-year US government bond remains depressed below the 4.0% threshold, which keeps the US Dollar bulls on the defensive and benefits the non-yielding metal.
• The US and UK forces carried out attacks against multiple Houthi targets in reaction to drone and missile attacks on ships in the Red Sea, raising the risk of a further escalation of geopolitical tensions.
• The Chinese inflation figures released this Friday fuel deflationary risks, while a 0.3% fall in imports during 2023 pointed to sluggish domestic demand and added to worries about slow economic recovery.
• The XAU/USD remains on track to end in the red for the second successive week as traders now look to the US Producer Price Index and Minneapolis Fed President Neel Kashkari's speech for a fresh impetus.

Technical Analysis: Gold price remains confined in a multi-day-old trading range

From a technical perspective, the overnight bounce from the 50-day SMA and the subsequent move up as well as positive oscillators on the daily chart favour bullish traders. That said, it will still be prudent to wait for a sustained strength beyond the $2,040-2,042 supply zone before positioning for additional gains. The Gold price might then accelerate the momentum towards last Friday's swing high, around the $2,064 area, en route to the $2,077 area. Some follow-through buying will negate any near-term negative outlook and set the stage for a move towards reclaiming the $2,100 round figure.

On the flip side, the $2,022 area now seems to protect the immediate downside ahead of the multi-week low, around the $2,013 region, or the 50-day SMA tested on Thursday. A convincing break below the latter will be seen as a fresh trigger for bearish traders and drag the Gold price to the $2,000 psychological mark. The downward trajectory could extend further towards the December swing low, around the $1,973 region before the XAU/USD eventually drops to the $1,965-1,963 confluence, comprising the 100- and 200-day SMAs.