Following losses yesterday, the precious metal is moving higher today. It is interesting to see that gold traders are also unsure of what the Fed's next move will be, even though there are signs that the Fed will lower rates rather than increase them. Having said this, the gold price is still very close to its ultra-high levels, making traders cautious. Here are two important data points in relation to the US CPI and PPI readings.
The Data Point
The US CPI number, due for release tomorrow, is the economic data point traders and speculators are eagerly anticipating. Traders will begin building up their bets after the US PPI reading is released later in the day. The forecast for the core PPI is 0.2%, which is the same as the last time, and for the PPI m/m, it is 0.3% up from its previous reading of 0.2%. This is certainly a direction that many traders do not want to see, but here we are, and the hope is that the actual reading for the PPI m/m will not exceed the forecast. The forecast for the US CPI year-over-year reading, due tomorrow, is 3.4%, compared to the previous reading of 3.5%.
A reading of 3.4% would be an encouraging sign for gold traders, as they would see that the pressure is coming off of the Fed, but before that, traders would have one more message to digest: the Fed Chairman’s message.
Powell is in the spotlight.
The Fed Chairman, Jerome Powell, will be speaking later today, and traders are going to see if they can find any sign of consistency in his message. A sign of consistency would be positive for the gold price. This is because the last time the Fed Chairman was in the spotlight, he said that the next move for the Fed’s monetary policy would be unlikely—a rate hike. This was enough to restore confidence among traders and investors, as they were fearful that the Fed could actually increase the interest rate one more time and make things a lot more difficult for everyone. His comments brought weakness to the dollar index and pushed the gold price higher.
Another reason that gold traders should closely monitor the Fed's speech today is because of a possible diversion in monetary policies. This is because the Bank of England is going to lower interest rates as early as June, according to the market. In their next meeting, the European Central Bank is also expected to lower interest rates, while the Fed may not do anything.
Fundamentals and Gold Price
If the US CPI data aligns with the forecast of 3.4%, the gold price is likely to rise, as the market has already factored this in. However, if the inflation rate exceeds the forecast of 3.4% (CPI y/y), the price action is likely to experience a significant pullback, potentially leading the yellow metal price to fall towards the chart's support level. Conversely, traders would welcome any reading that aligns with the 3.4% forecast, or even a lower one. This is because traders would not anticipate that the Fed would keep the rates where they are, which means a potential move to the downside could take place. This would be positive for sentiment and could push the dollar index lower while the gold price moves higher.
Technical price moves
From a technical price point perspective, the MACD indicator on the 4-hour time frame now clearly shows that the bears have taken control, and this is because the blue line of the MACD indicator has fallen below the red line. As long as this continues, we could see more gradual price movements to the downside. However, the price is also close enough to its support line (green line), which could bring some big buyers back into the market. The red line on the chart represents resistance, and if the inflation data improves and the blue line moves back above the red line, the price could move towards that point.
