Gold prices surged to a five-week high during Thursday’s Asian session, briefly surpassing the key $2,700 per ounce mark. This rise followed the release of the U.S. Core Consumer Price Index (CPI) data on Wednesday, which showed inflation cooling more than expected. The Core CPI, which excludes volatile food and energy prices, rose by just 0.2% month-over-month (m/m), below the anticipated 0.3%. The softer inflation reading has led to speculation that the Federal Reserve may slow its interest rate hikes, which in turn has weakened the U.S. dollar and boosted gold’s appeal as a safe-haven asset.
The Core CPI report is a critical indicator for the Federal Open Market Committee (FOMC) as it reflects underlying inflation trends, which influence monetary policy decisions. The U.S. Federal Reserve’s approach to interest rate adjustments, particularly in light of its inflation control goals, has significant implications for the strength of the dollar. As the dollar weakens, gold, which does not yield interest, becomes more attractive to investors.
Technical Outlook for Gold Prices: Strong Momentum but Resistance Ahead
On the technical front, indicators show a continued upward trend for gold. The Relative Strength Index (RSI) on the 4-hour chart has entered bullish territory, signaling further upside potential. If gold can maintain its bullish momentum above the $2,700 mark, it could achieve its third consecutive day of gains and potentially target December’s high of $2,730.
However, the $2,700 level presents a key resistance. Traders will be closely monitoring whether gold can sustain its upward trajectory above this threshold. If the resistance proves too strong, gold could retreat and enter a phase of consolidation within its recent range. A failure to decisively break through $2,700 may lead to a test of support at $2,665, which is reinforced by the 100-period Exponential Moving Average (EMA) on the 4-hour chart.
Gold’s price movement will depend on its ability to break through this critical resistance. If successful, further gains could be on the horizon, but a failure to breach this level might result in a period of consolidation.
Market Expectations: U.S. Economic Data and Fed Policy Outlook
The Producer Price Index (PPI) report also played a role in shaping market expectations, suggesting that further monetary policy easing by the Federal Reserve could be in the cards. This outlook has contributed to gold’s recent recovery, as the XAU/USD pair rebounded by 0.5% on Tuesday, recovering some of its earlier losses.
As the U.S. Federal Reserve continues to weigh inflation and economic growth, gold remains a key asset to watch for indications of future rate decisions and their impact on the broader market.
