Gold price hold steady ahead of key CPI data, FOMC decision

Positive sentiment prevails in the US economy, as evidenced by the May NFIB Small Business Optimism Index exceeding expectations. Upcoming data, including the Consumer Price Index (CPI) and the Federal Open Market Committee’s (FOMC) monetary policy decision with its “dot plot,” are likely to influence gold prices as inflation concerns linger.

Uncertainty hangs over the XAU/USD market as traders await the FOMC’s two-day meeting, culminating in a crucial policy announcement on Wednesday. The XAU/USD price sits at $2,311, reflecting a marginal increase of 0.07%.

Tuesday offered a quiet day for US economic data, with only the release of the May NFIB Small Business Optimism Index, which surpassed both estimates and April’s figures. Forecasts suggest Wednesday’s CPI data will hold near April’s levels, indicating stubbornly high inflation despite the Federal Reserve’s (Fed) recent series of interest rate hikes exceeding 500 basis points.

Following the CPI release, the Fed, led by Chair Jerome Powell, will unveil its monetary policy statement and the Summary of Economic Projections (SEP), which includes the widely-followed “dot plot” outlining the expected path for future monetary policy.

Analysts suggest a 25-basis-point (bps) interest rate cut by the Fed in 2024. Meanwhile, data from the Chicago Board of Trade (CBOT) indicates that December 2024 fed funds futures contracts suggest most traders expect a similar easing of 28 bps by year-end.

In the meantime, the yield on the US 10-year Treasury note dipped by six basis points to 4.41%, posing a headwind for gold. Consequently, the DXY, the US Dollar index against a basket of six currencies, rose 0.15% to 105.25.

Daily market movers in brief: Gold price remains stable ahead of US inflation data and the Fed’s decision.

News of the People’s Bank of China (PBOC) halting its 18-month gold buying spree put downward pressure on the precious metal. “Holdings of the precious metal by the PBOC remained unchanged at 72.80 million troy ounces for May.

The US NFIB Small Business Optimism Index for May reached its highest point of the year at 90.5, up from 89.7 in April. Inflation is the single most critical issue for businesses. The survey also indicated companies plan to increase hiring, with financing being another major concern.

The US CPI for May is expected to show a decrease from 0.3% to 0.1% MoM, with core CPI projected to remain steady at 0.3% MoM.

On a year-over-year basis (YoY) to May, CPI is forecast to hold at 3.4% compared to April, with underlying core CPI expected to slow down from 3.6% to 3.5%.

Last week’s US jobs data hinted at continued strength in the US economy, potentially making the Fed less likely to loosen policy. However, a weaker-than-anticipated inflation report could sway Fed Chair Powell and the committee to maintain their stance of expecting three interest rate cuts by year-end.

According to the CME FedWatch Tool, the probability of a Fed rate cut in September has decreased from 50% last week to 46.7% as of Tuesday.

Technical Scene:

Gold price edges up, hovering around $2,310. Gold formed a Head-and-Shoulders chart pattern, suggesting a potential decline towards the pattern’s target of $2,160 to $2,170. However, the non-interest-bearing metal remains subdued around $2,300, awaiting a fresh catalyst, potentially the Fed’s policy decision.

If XAU/USD falls below $2,300, the next support level is the May 3rd low of $2,277, followed by the March 21st high of $2,222. Further declines could see buyers emerge near the $2,200 level. Conversely, if gold buyers push prices above $2,350, consolidation could occur within the $2,350 to $2,380 range.