Gold is currently priced under $4,600 during the European session, close to its all-time high. The US Dollar has gained strength after a recent decline, which challenges gold’s upward movement. Concerns over the independence of the US Federal Reserve could limit how much the dollar can appreciate. The possibility of more rate cuts from the Fed might boost gold prices, while ongoing geopolitical issues help protect against significant declines. Traders are closely watching the upcoming US Consumer Price Index (CPI) report, as it will affect expectations around future Fed rate cuts. This report could shift USD demand and impact the XAU/USD pair. Additionally, traders are looking for buying chances at lower price points, with factors in place to help prevent big corrections.

Uncertain Economic Indicators

A criminal investigation involving Fed Chair Jerome Powell adds to uncertainty, pushing gold prices higher. Geopolitical tensions, like possible US actions against Iran, are also driving gold prices up. Evidence from the US Nonfarm Payrolls report suggests a stagnant policy outlook, leading traders to expect more Fed rate cuts this year. The December headline CPI is anticipated to increase by 0.3%, with the annual rate at 2.7%. Any changes to these expectations might cause fluctuations in both the USD and gold prices. The rising channel from $3,920.24 indicates a bullish trend, with resistance around $4,656.02. The 50-day Simple Moving Average (SMA) is increasing, showing a buying preference, while the MACD line stays positive. However, the RSI indicates that the market is overbought. Any price pullback may stay above the SMA, and if prices close above the channel’s upper limit, this could suggest more gains ahead. The CPI data, which excludes food and energy, is an essential measure from the US Department of Labor Statistics, providing insights into inflation trends. Expected at 2.7% year-over-year, this figure is important for the US Federal Reserve’s goals and keeps market interest alive amid ongoing price pressures post-pandemic. Currently, we find ourselves in a wait-and-see moment just below gold’s high of $4,600, with all eyes on today’s US inflation report. The market is set for a major move, as implied volatility on near-term gold options has reached a three-month high of 22%. This creates an opportunity for traders looking to use derivatives to prepare for the anticipated price change after the report.

Potential Impact of CPI Report

If the CPI report shows a number higher than the expected 2.7%, we anticipate the US Dollar to gain strength as bets on Fed rate cuts decrease. This could lead to a sell-off in gold, presenting a chance to use put options or short futures contracts. A significant target in this case would be the support level at the 50-day SMA around $4,255. On the other hand, if the inflation report indicates weaker numbers, this would strengthen the argument for more rate cuts this year, likely pushing gold past the current resistance near $4,656. Traders may consider using call options, as recent data reveals that large speculators have been increasing their net-long positions, reflecting strong underlying bullish sentiment. Regardless of how the inflation data reacts immediately, the overall economic environment remains supportive for gold in the coming weeks. Persistent geopolitical risks, especially regarding Iran, and uncertainty surrounding the Federal Reserve’s independence are expected to provide a safety net for gold prices. Therefore, any significant price dip is likely to be regarded as a buying chance. We experienced a similar situation in 2022 and 2023, where high inflation and geopolitical shocks led to volatile swings in gold prices. Ultimately, gold established a strong upward trend as its safe-haven and inflation-hedging qualities gained prominence. This historical context suggests that the current upward trend has the potential to continue, even with possible short-term pullbacks. Create your live VT Markets account and start trading now.

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