Gold Outlook: US CPI rates due out this week

Gold’s bullish tendencies since our last report appear to have diminished, with the precious now entering its second week in the reds. The downward motion had a strong fundamental background, and we tend to note that there is still volatility ahead for the precious metal in the current week. Today we are to discuss the fundamental challenges laid ahead for the precious metal, while we will be concluding this report with a technical analysis of gold’s daily chart.

Gold Market Report

US Employment data comes in better than expected

The release of the US Employment data for December last Friday, indicated that the (WASHINGTON DC) US labour market still remains tight, despite the current interest rate levels. In particular, the Non-Farm Payrolls figure came in much higher than expected at 216k in combination with the greater-than-expected average hourly earnings rate at 0.4% , tended to imply that the US labour market not only remains relatively tight but is also faring better than expected. The surprising resiliency from the (FED) US labour market,  may have stoked fears that inflationary pressures in the US economy may remain elevated for the future and as such the expectations by market participants of 6 rate cuts by the Fed during the year, may have been over-optimistic.

As such, with the possibility of the Fed maintain the current interest rates for a prolonged period of time, market expectations of 6 rate cuts by the Fed dropped temporarily to 5 rate cuts for the rest of the year, which may have provided(FED)  support the dollar and thus may have weighed on gold. In conclusion, the dollar gained upon the release of the US Employment data, which in turn led to the precious metal declining given their inverse relationship and should further financial releases from the US(GOLD BARS)  imply that the risks of persistent inflationary pressures remain elevated, we may see the dollar gaining further with the precious being weighed down.

US CPI rates due out later on this week

The US CPI rates for December are due to be released this week. In particular, (US TREASURY BUILDING) the Core CPI is expected by economists to increase at a decreasing rate, with the projected rate expected to come in at 3.8% versus the prior rate of 4.0% on a year-on-year basis. Should the Core CPI rates come in as expected, it could validate the current market expectations of 5 rate cuts by the Fed this year, as it implies that inflationary pressures on the US economies may be easing.

However, the headline CPI rate is(WASHINGTON DC)  expected to increase at an increasing rate, from 3.1% to 3.2% on a year-on-year basis, contradicting the theory that inflationary pressures are easing and as a matter of fact tend to suggest that inflationary pressures may be increasing.

Moreover, in the event that the Headline CPI rate comes in as expected or higher it could dampen the current market’s expectations of 6 rates cuts, thus potentially aiding the dollar, which in turn could weigh on the (gold bars) precious metal and vice versa. In conclusion, the divergence between the Core CPI and Headline CPI rates could offset their potential effects on the greenback yet given that the Fed’s favourite tool for measuring inflationary pressures are widely known to be the Core PCE rates and not the Core CPI rates, we may see a greater market reaction from the release of the Headline CPI rates.

Gold: Technical Analysis

XAUUSD Daily Chart

• Support: 2015 (S1), 1975 (S2), 1930 (S3)
• Resistance: 2050 (R1), 2088 (R2), 2136 (R3)

On a technical level, we note that Gold appears to be moving in a downwards fashion, having formed a downwards trendline which appears to have been guiding the precious since its inception on the 28  of December. We opt for a bearish outlook for the precious metal and supporting our case, is the Bollinger band median, which appears to be tilted to the downside, implying a bearish market sentiment as also do the fifty and one hundred moving averages, in addition to the RSI indicator below our daily chart currently registering a figure of fourty, implying a bearish market sentiment.

For our bearish bias to continue, we would like to see a clear break below the two thousand and fifteen (S1) support level, with the next potential target for the bears being the one thousand nine hundred and seventy five (S2) support line. Whereas, for a sideways bias to occur, we would like to see the precious metal remain confined between the two thousand and fifteen (S1) support level and the two thousand and fifity (R1) resistance line. Lastly, for a bullish outlook, we would like to see a clear break above the two thousand and fifty (R1) resistance level, with the next possible target for the bulls being the two thousand and eighty eight (R2) resistance ceiling.

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