gold prices experienced a slight decline in early trading on Tuesday, hovering around the $2,500 level. Despite the pullback, the precious metal remains within a familiar trading range, as investors adopt a cautious approach ahead of the crucial US Consumer Price Index (CPI) data set to be released on Wednesday. The daily Relative Strength Index (RSI) retains a bullish stance, but the overall market sentiment suggests a challenging environment for gold buyers.
The ongoing struggles for gold prices come amid diminishing expectations for significant interest rate cuts by the US Federal Reserve. Currently, prices are testing a vital short-term support level around $2,499 as US Treasury bond yields see an uptick and the US Dollar exhibits strength. These shifts are influenced by a return to risk-off sentiment, particularly in Asia, amid concerns regarding a potential economic slowdown in China. The demand for safe-haven assets, such as the US Dollar, remains robust despite the market cooling on expectations for a 50 basis points rate cut by the Fed next week, following a subdued US labor market report.
Market sentiment is reflecting a 29% likelihood for a 50 bps rate cut, a decline from around 47% prior to the latest labor data release, with approximately 110 basis points of cuts expected throughout the year. Following these developments, major Wall Street indices rebounded, yet the recent downtrend in Treasury yields allowed gold prices to momentarily recover.
Investors are now focused on the upcoming US inflation figures, which could induce volatility in both the US Dollar and gold prices. This data will play a pivotal role in shaping expectations around Fed rate decisions beyond September. Until then, gold prices may remain beholden to shifts in risk sentiment, especially with no significant US economic releases scheduled for Tuesday. The Fed has also entered a blackout period before the policy meeting, further complicating the gold outlook.
Technically, gold prices remain steady on a short-term basis. As long as buyers can sustain the support at the 21-day Simple Moving Average of $2,499, there is still hope for upward momentum. A successful breach above $2,532 could redefine market horizons, while any rejection near that level may signal potential corrections, necessitating a close below $2,499 for a more sustained downturn. If such a scenario unfolds, further support levels would be tested at $2,472 and $2,461.
