Gold price hit a fresh multi-month high on Thursday in reaction to the US CPI data. The report showed that consumer prices dropped further in December; signalling that inflation has peaked. In the ensuing weeks, ahead of the February Fed meeting, investors will be keen on how the Fed interprets the recent inflation and jobs data.
Fundamentals
US CPI data
Data released on Thursday by the US Labor Department showed that in December, consumer prices recorded the largest monthly drop since the initial months of the COVID-19 pandemic. The CPI dropped by 0.1%; meeting economists’ expectations.
Notably, the decline in gasoline prices was largely behind the easing of consumer prices. With the exclusion of the volatile energy and food components, the core CPI also met expectations by rising by 0.3% and 5.7% on a monthly and annual basis respectively.
Inflation, Fed & gold price
While inflation appears to have peaked, it remains persistently high. Interestingly, the market sees the recent inflation data as one more sign for the Fed to consider easing its aggressive monetary policy. Indeed, this explains why the benchmark 10-year Treasury yields dropped by 3.02% and subsequently boosted gold price.
Notably, analysts appear to be divided on whether the Fed will slow on its interest rate hikes in the short term. In my opinion, both camps bear the same point. Yes, the Fed will ultimately take a dovish stance. However, it may not be as soon as some analysts forecast.
Even with the positive figures, the labor market remains quite strong and inflation is still high. Besides, the Fed appears more keen on inflation in services other than the food, housing, and energy markets. The focus on this aspect is founded on the fact that service prices may make it more tricky for the Fed to bring back inflation to its 2% target.
From this point of view, $2,000 may remain evasive for gold price a while longer. However, even with the hawkish Fed, recession concerns will continue to offer support to the precious metal.
Gold price prediction
After pulling back in the previous session, gold price extended its gains on Thursday; hitting a fresh multi-month high at 1,903.61. Over a span of about two months, the precious metal has rallied by over 17%. Having hit a level that was last recorded in May 2022, the bulls appear keen on pushing the metal’s prices even higher.
As seen on its daily chart, gold price was trading above the 25 and 50-day EMAs, which is a bullish sign. For as long as the asset remains above the resistance-turn-support level of 1,820, I am of the opinion that the bulls will remain in control of the gold market.
In the short term, 1,900 will be a level worth watching. For the bulls to rally further to the next target at 1,920.57, the asset needs to attract more buyers to break the crucial resistance at 1,900. On the lower side, 1,870 and 1,850 will be major support levels for gold price in the ensuing sessions.
