In the financial markets, all eyes are on the upcoming US Consumer Price Index (CPI) report, as traders eagerly anticipate its potential impact on gold prices and Federal Reserve rate cut predictions. The 14-day Relative Strength Index (RSI) for gold is currently hovering near 56, signaling a favorable 'buy-the-dips' trading strategy. Meanwhile, market participants have tempered their expectations, now anticipating only one Fed rate cut in 2025, down from two anticipated last December. This shift follows the release of robust US Nonfarm Payrolls (NFP) data in December, which has prompted a reevaluation of future monetary policy.
The forthcoming US CPI report is set to play a pivotal role in shaping market sentiment. Economists project the headline US CPI to rise by 2.9% year-over-year in December, with core inflation expected to remain steady at 3.3%. A CPI print that exceeds these expectations could reinforce the outlook for just one rate cut this year or potentially lead markets to eliminate any easing possibilities entirely.
Gold prices have remained buoyant amidst a triangle breakout on the daily chart and a bullish RSI. However, traders are adopting a cautious stance, refraining from placing fresh bets on gold while capitalizing on recent long positions ahead of the critical CPI release. The precious metal's downside appears cushioned by fluctuating expectations surrounding potential rate hikes by the Bank of Japan (BoJ).
In terms of price levels, gold finds solid support at the January 13 low of $2,656. Should sellers breach this level, they must then contend with the $2,640 demand area. To regain upward momentum, gold prices need to achieve a sustained break above the $2,675 barrier, eventually targeting the $2,700 level.
The broader economic landscape presents mixed signals. The monthly CPI inflation is anticipated to hold steady at 0.3%, with the core figure slightly easing to 0.2% in December. Meanwhile, the US Producer Price Index (PPI) revealed annual growth of 3.3% in December, falling short of the anticipated 3.4% increase. Core PPI inflation rose to 3.5% year-over-year, below market forecasts of 3.8%.
These indicators highlight the variability in economic data and their implications for monetary policy. The combination of strong employment figures and tepid inflationary pressures complicates the Federal Reserve's decision-making process regarding interest rate adjustments.
As traders await the US CPI data, the gold market remains in a state of anticipation. The outcome of this report could either bolster or temper current expectations around Federal Reserve rate decisions, consequently influencing gold's trajectory in the near term.