Gold price (XAU/USD) has generated significant gains as investors are confident about an interest rate cut by the Federal Reserve (Fed) at its monetary policy meeting on March 20 – such a move would support non-yielding assets such as Gold. The probabilities of an early interest rate cut are assessed as firmer despite consumer price inflation in the United States remaining stubbornly high in December, amid a significant increase in rental prices and healthcare costs. Meanwhile, soft US Producer Price Index (PPI) numbers for December and deepening Middle East tensions have strengthened near-term demand for bullions. Monthly headline PPI continues to contract by 0.1% against expectations of 0.1% growth. The annual headline PPI accelerated at a slower pace of 1.0% while investors projected a 1.3% growth against 0.8% increase in November. The monthly core PPI continues to remain stagnant against a 0.2% growth projection while prices of core goods and services at factory gates were decelerated to 1.8% versus. consensus of 1.9% and the former reading of 2.0% on an annual basis.
Tensions in Middle East have deepened as the US & UK military have launched airstrikes on Houthi targets in Yemen in retaliation for attacking merchant vessels shipping from Red Sea. This has increased fears of widening conflicts in the Middle East as Iran could potentially enter in Israel-Hamas war at Gaza. While market participants continue to commit funds toward Gold amid optimism over early rate cuts, Fed policymakers will stick to a restrictive interest rate stance as price pressures in addition to the required rate of 2% are highly sticky, due mainly to stable labor market conditions. Fed policymakers have been reiterating that a lot of work has yet to be done in order to gain confidence that the underlying inflation will return to 2% in a sustainable manner.
Bank of Chicago Federal Reserve President Austan Goolsbee, on Thursday, stressed a data-dependent approach and said that there were weeks and months of data to come, to help guide when and how much rates should be reduced. Cleveland Fed President Loretta Mester said she needed more evidence to confirm inflation declining towards 2% in a timely manner before jumping on the bandwagon of rate-cut discussions. Gold price delivers a V-shape recovery after printing a fresh three-week low below $2,015. The 50-day Exponential Moving Average (EMA) has acted as a strong support for the Gold price bulls. The precious metal has managed to climb slightly above the 20-day EMA, which trades around $2,036. While the upside bias is intact, a bullish momentum has faded as the 14-period Relative Strength Index (RSI) is oscillating near 50.00.
