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Gold Price Recovery Emerges Ahead of US CPI Report Despite Hawkish Fed

Gold Price Recovery Emerges Ahead of US CPI Report Despite Hawkish Fed

David Song,
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Gold Price Talking Points

The price of gold trades to a fresh weekly high ($1820) after carving a bullish outside day candle formation, and fresh developments coming out of the US may keep the precious metal afloat as inflation is expected to pick up for the fourth consecutive month.


Gold Price Recovery Emerges Ahead of US CPI Report Despite Hawkish Fed

The price of gold attempts retraces the decline from the start of the month as Federal Reserve Chairman Jerome Powell strikes a hawkish tone during his confirmation hearing in front of the Senate Committee on Banking, Housing and Urban Affairs, with the central bank head pledging to “use our tools” in order to achieve price stability.

The comments suggests the Federal Open Market Committee (FOMC) may normalize monetary policy sooner rather than later as Chairman Powell acknowledges that the “economy no longer needs or wants the very highly accommodative policies that we’ve had in place,” and it remains to be seen if the update to the US Consumer Price Index (CPI) will sway the central bank as the headline reading is expected to climb to 7.0% from 6.8% per annum in November, which would mark the highest reading since 1982.

Image of DailyFX Economic Calendar for US

Evidence of stronger price growth may push the FOMC to implement higher interest rates over the coming months as the core CPI is anticipated to show a similar dynamic, and the development may ultimately boost the appeal of gold as a hedge against inflation. As a result, the price of gold may stay afloat even as longer-dated US Treasury yields climb to fresh monthly highs, and the precious metal may push higher over the coming days as it reveres ahead of the December low ($1753).

With that said, another pickup in the US CPI may generate a bullish reaction in bullion, and the price of gold may continue to retrace the decline from the November high ($1877) if it clears the opening range for January,

Gold Price Daily Chart

Image of Gold price daily chart

Source: Trading View

  • The broader outlook for the price of gold has become relative flat as the 50-Day SMA ($1805) and 200-Day SMA ($1801) continue to converge with one another, and the precious metal may trade within a defined range as it reveres ahead of the December low ($1753).
  • The price of gold has come up against the $1816 (61.8% expansion) to $1823 (23.6% expansion) region after carving a bullish outside day candle formation, with a break of the January opening range opening up the $1837 (38.2% retracement) to $1847 (100% expansion) area.
  • A break above the November high ($1877) opens up the Fibonacci overlap around $1914 (38.2% expansion) to $1929 (23.6% retracement), with the next area of interest coming in around $1985 (261.8% expansion) to $1987 (50% expansion).
  • However, lack of momentum to close above the $1816 (61.8% expansion) to $1823 (23.6% expansion) region may push the price of gold towards the $1762 (78.6% expansion) to $1763 (50% retracement) region, with a break below the December low ($1753) bringing the September low ($1722) on the radar.
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--- Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.