After the US CPI data came above expectations, the gold price saw a sharp decline below 2 thousand dollars. Meanwhile, the increase in treasury yields challenges the appeal of gold. The strong US dollar also puts pressure on gold prices.
ANZ: Gold price may come under more pressure!
cryptokoin.comAs you follow from , gold fell below $2,000 after US inflation was stronger than expected. US Treasuries and USD rose following strong CPI data. Core CPI increased by 0.4% on a monthly basis in January, dampening hopes for an early interest rate cut. Gold came under sudden pressure as US Treasury yields and the USD rose. ANZ Bank strategists make the following assessment:
The precious metal has held above $2,000, a key psychological level, since mid-December on hopes that the US central bank will be forced to quickly cut borrowing costs. Since this seems unlikely at the moment, prices could come under further pressure if other economic data remains strong.
Sellers are influenced by multiple factors
The gold price fell on Wednesday after significantly breaching the critical $2,000 threshold. This downward trend is being driven by a combination of factors including unexpected U.S. Consumer Price Index (CPI) data, a rise in Treasury yields, a strengthening U.S. Dollar, key technical support levels, and changing expectations regarding Federal Reserve interest rate policies.
Impact of CPI data and Treasury yields
The latest CPI data exceeded expectations, indicating an annual increase of 3.1%. This higher than expected inflation rate reduced the possibility of the Fed making an early interest rate cut. Thus, it negatively affects gold prices. The increase in consumer prices due to the impact of housing and health costs indicates that inflationary pressures will continue.
Meanwhile, the yield of the 10-year Treasury bond reached the highest level of the last 2.5 months at 4.32%. It is estimated that the return will increase further. High yields reduce the appeal of gold as it offers an alternative return on investment. The market predicts that yields will likely exceed the 5.00% level we last saw in October 2023.
US Dollar decline and technical support levels
The dollar index (DXY) is near its highest level in three months, strengthened by inflation data. A stronger dollar makes gold more expensive for holders of other currencies, reducing its demand. Speculators see 105.628 as the instrument’s next target. This does not bode well for gold traders, with the dollar index currently at 104.899.
Gold’s next critical support level is around $1,973.09, a figure consistent with the Federal Open Market Committee’s (FOMC) interest rate cut announcement in mid-December 2023. However, further declines could trigger additional selling, with the 200-day moving average at $1965.53 another potential target level.
Gold price short term outlook and technical analysis
Market analyst James Hyerczyk evaluates the short-term outlook and technical picture of gold. The short-term outlook for the gold price is bearish. Ongoing inflation, higher yields and a strengthening US dollar are creating headwinds for gold prices. The Fed’s hesitation to implement interest rate cuts, probably until June, further solidifies this downward outlook. Investors’ focus is now on upcoming US retail sales data and PPI figures. Additionally, investors will soon be watching for comments from Fed officials, including Chairman Jerome Powell, for indications of future rate cuts.
Gold broke above the 50-day moving average late last week. However, it later came under pressure in the fourth session on Wednesday this week. This move marked a downward shift in the intermediate trend. Resistance comes today at $2030.98. Considering the current downtrend and expanding momentum, the market appears to be trending towards the 200-day moving average at $1965.52. This indicator represents the long-term trend. A technical bounce is possible on the first test of this moving average. However, if it fails as support, another acceleration to the downside is likely.
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