Summary: The article explores the recent surge in gold prices to almost $2,050, driven by soft inflation data and potential breakout from a Symmetrical Triangle formation. Despite mixed economic indicators from the US, including steady inflation figures, the precious metal faces challenges from a strong US dollar and rising Treasury yields.
Key Points:
- Symmetrical Triangle Breakout: Gold exhibits a strong recovery, hinting at a potential upside breakout from the Symmetrical Triangle formation on the daily timeframe, with implications for the prevailing trend.
- Inflation and Rate Cut Speculation: Soft inflation data, particularly from the core Personal Consumption Expenditure Price Index, fuels expectations of Federal Reserve rate cuts in the June monetary policy meeting, impacting the opportunity cost of holding non-yielding assets like gold.
- Challenges Amidst Economic Landscape: Gold’s struggle to gain momentum is evident as it stabilizes around $2038 per ounce, facing headwinds from a robust US dollar and increasing Treasury yields. The metal is on track for a monthly loss and has declined by 1.4% since the beginning of 2024.
Gold prices displayed a robust recovery, surging to nearly $2,050, fueled by soft inflation data. The precious metal exhibited a potential for an upward breakout from the Symmetrical Triangle formation observed on the daily timeframe. Typically, Symmetrical Triangles can break out in either direction, but the prevailing trend, in this case, suggests an upward move. A decisive breach beyond the triangle’s boundaries would confirm the breakout.
Thursday’s uptick in Gold Prices followed the release of a mixed set of crucial economic indicators from the United States. Notably, the inflation snapshot in the Personal Consumption Expenditures series, a key metric for the Federal Reserve, held significance. Despite the numbers aligning with expectations, with the headline price index up 2.4% in January and the ‘core’ reading up by 2.8%, the deceleration maintains hopes for potential rate cuts, even if not imminent.
Simultaneously released jobless claims figures revealed a slight increase, aligning with expectations. While these numbers may not drastically alter interest-rate expectations, they underscore the persistent visibility of the inflation threat and cast uncertainty on near-term rate reductions. Initial hopes for early rate cuts in the beginning of the year now seem deferred to the second half of 2024.
Amidst this economic backdrop, gold futures stabilized midweek as investors prepared for US inflation data, particularly scrutinized by the Federal Reserve. However, the yellow metal struggles to gain momentum, facing headwinds from a strong US dollar and rising Treasury yields. At the time of this analysis, the gold price hovers around $2048 per ounce, set for a monthly loss of 0.8% in February and a cumulative decline of 1.4% since the start of 2024.
In Thursday’s early American session, the gold price experienced a strong recovery following the softening of the United States core Personal Consumption Expenditure Price Index (PCE) for January, in line with expectations. This soft inflation data heightens expectations of potential Federal Reserve rate cuts in the June monetary policy meeting, as the opportunity cost of holding non-yielding assets like gold decreases in anticipation of rate cuts.
Annual inflation data decelerated to 2.8%, down from December’s 2.9%, while the monthly core PCE Price Index rose by 0.4%, aligning with market expectations. The subdued inflation growth would likely diminish the appeal of the US Dollar and bond yields, as the market closely monitors the Fed’s preferred inflation tool. Although the softer-than-expected inflation report doesn’t significantly elevate expectations for rate cuts in the March and May policy meetings, Fed policymakers emphasize the need for sustained positive inflation data over multiple months to prompt a shift in monetary policy stance.