gold prices faced renewed selling pressure above $2,675 on Wednesday as traders adopted a cautious stance while awaiting the upcoming release of the US Consumer Price Index (CPI) data, which will provide crucial insights into the Federal Reserve’s interest rate policies.
After a brief upswing, gold prices declined as market participants opted to take profits from recent long positions, particularly in light of the weaker-than-expected Producer Price Index (PPI) figures released earlier. With the US Dollar and Treasury bond yields showing little activity, gold struggled to maintain upward momentum. The PPI data illustrated an annual increase of 3.3% in December, falling short of expectations, while core PPI inflation was reported at 3.5%, also below forecasts.
The impending CPI report has elevated expectations regarding the Federal Reserve’s monetary policy, as market participants reassess potential rate cuts. Analysts now expect a single rate cut in 2025, a shift from two previously anticipated, largely influenced by robust Nonfarm Payrolls data reported for December. This recalibration in expectations coincides with predictions that inflation could rise under the incoming administration’s protectionist policies.
Economists forecast a 2.9% year-on-year increase in headline CPI for December, slightly above November’s 2.7%. The core CPI is anticipated to maintain a steady rate of 3.3%, with monthly figures expected at 0.3% and core inflation likely easing to 0.2%. Should the CPI exceed expectations, it could solidify the prevailing hawkish sentiments regarding interest rates, potentially leading to a sell-off in gold as its appeal diminished amid rising yields.
From a technical standpoint, gold is currently in a bullish consolidation phase after a recent breakout, with the Relative Strength Index indicating a buying opportunity for dips. A sustained breakthrough above the $2,675 level is essential for momentum towards the key resistance level of $2,700. Conversely, critical support stands at the January 13 low of $2,656, with additional support at $2,640, which is supported by significant moving averages and is crucial to prevent further declines.
