The gold spot price (XAUUSD) recently dipped below the psychological threshold of $2,000 per ounce, marking a shift from its previous stability above this level since December, which was attributed to various factors, including ongoing geopolitical tensions in the Middle East and expectations of rate cuts from the Federal Reserve.
However, yesterday’s release of the US Consumer Price Index (CPI) brought a notable shift. Year-over-year inflation unexpectedly rose to 3.1%, surpassing the forecast of 2.9% and only slightly decelerating from the previous 3.4%. Core inflation, which excludes volatile food and energy prices, remained stubbornly high at 3.9%, missing the consensus of 3.7%. This unexpected inflationary pressure prompted a significant reassessment of the market’s expectations regarding the timing of potential rate cuts by the Federal Reserve.
According to the CME FedWatch Tool, the market has now largely discounted the likelihood of a rate cut in March, a sharp reversal from a month ago when an 81% probability was priced in. Similarly, the probability of a rate cut in May has declined from 61% just a day ago to 43%, exerting pressure on the US Dollar and undermining the appeal of non-yielding assets like gold.
Technical
On the 4H chart, the inflation data triggered a breakdown of the descending triangle pattern, with the downtrend being sustained below multiple support levels. However, it has now reached a strong demand zone, and with the RSI indicating oversold conditions, the trend may be overextended, leaving the possibility for a pullback.
If the price remains above $1,985.85/oz, it could start the retracement process. Resistance at $1,991.74/oz and $2,001.51/oz present the first hurdles to the bullish momentum, which could test the strength of the recovery. However, if these levels are breached, the pullback could be prolonged to $2,012.27/oz, close to where the initial breakdown occurred.
On the contrary, the bearish trend could be sustained if the demand zone near $1,985.85/oz fails to provide buyers. Movement below this threshold could see the spot price test support at $1,978.68/ounce, while neckline support is established at $1,972.81/oz if the selling pressure persists.
Summary
After gold’s sustained period of trading above the $2,000 per ounce level, the hot US inflation data triggered a breakdown below this psychological threshold. If the price remains above the current demand zone near $1,985.85/oz, a retracement could be initiated in the upcoming session.
Sources: Koyfin, Tradingview, CME Group
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
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