Gold’s Fate Relies On US CPI

Federal Reserve implied rate probabilities are becoming increasingly more responsive to inflation and labour data showing market indecision ahead of the Fed’s March meeting that could guide gold prices.

xauusd

XAUUSD – Daily chart

Technical analysis on the daily chart favours bulls. In the Daily chart, XAU/USD price action shows a breakout from the recent symmetrical triangle chart pattern and above the $1850 psychological handles eye on the previous high of $1895.

Last week, a roller coaster in gold prices saw the yellow metal close significantly higher on the back of US Non-Farm Payroll (NFP) data. However, markets focused on the higher unemployment and declining wage data rather than the headline NFP release. This mixed data bag will emphasise the upcoming US CPI report for guidance.

The impact on interest rate forecasts has been dramatically reduced to a terminal rate of 5.283%. The debate over whether the Fed will opt for a 25bps or 50bps increment is now skewed towards the former depending on Tuesday’s inflation figure, showing elevated pressures. It is worth mentioning the issue of the distress in the banking sector after the Silicon Valley Bank (SVB) saga, in that the high-interest rate environment (tight monetary policy) is starting to uncover the fragilities in specific sectors of global financial markets and may prompt the Fed to proceed with caution.

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