Gold price recovery seeks more clues from US inflation data

The US Dollar’s inability to cheer the upbeat US Consumer Price Index (CPI) data for December, mainly due to the mixed Fed talks, joined the geopolitical tensions to test the market’s risk profile on Friday.

With this, the Greenback remains dicey on a daily and weekly basis while the commodities pare weekly losses. That said, Crude Oil cheers inventory status, China demand and the fears of a supply crunch while the Gold price recovers from a short-term key support, despite lacking upside momentum of late.

That said, US Treasury bond yields stay pressured at multi-month lows and allow the equities, as well as Antipodeans, to edge higher. However, the Asia-Pacific shared failed to cheer the run-up amid looming Taiwan elections and connected fears about the US-China tension.

EURUSD struggles to defend the weekly gains while GBPUSD edges higher. Further, USDJPY traces downbeat yields and lures sellers amid the market’s discomfort with the Bank of Japan’s (BoJ) ultra-easy policies.

On a different page, BTCUSD and ETHUSD seek more clues to extend the previous day’s retreat from the yearly high.

To overcome the market’s indecision, Friday’s US Producer Price Index (PPI) and statements from multiple central bankers will be crucial to watch.

Following are the latest moves of the key assets:

• Brent oil remains mildly bid at a one-week high, up 0.80% intraday near $79.20 by the press time.
• Gold price extends recovery from a two-week low to near $2,038 at the latest.
• USD Index remains dicey around 102.40, lacking upside momentum of late.
• Wall Street closed mixed and so did the Asia-Pacific stocks. However, equities in the UK and Europe edge higher during the initial hour.
• BTCUSD and ETHUSD both print mild losses around $46,000 and $2,600 respectively after reversing from the yearly high earlier in the week.

US Dollar failed to cheer upbeat US data but Gold recovered…

US inflation figures for December came in better than expected and prior, which in turn pushed back concerns about the US Federal Reserve’s (Fed) sooner rate cuts. However, comments from the officials and details of the CPI data failed to defend the hawkish bias and flagged fears of an end to the restrictive monetary policy, which in turn reversed the inflation-led gains of the Greenback and allowed the Gold price to recover from the short-term key support line. Apart from that, softer US Treasury bond yields and improvement in China inflation cues, as well as trade numbers, also allowed the XAUUSD to pare recent losses.

The headline US inflation gauge, namely the Consumer Price Index (CPI), rose past market forecasts and the previous readings to 0.3% MoM and 3.4% YoY. It’s worth noting, however, that the CPI ex Food & Energy, also known as the Core CPI, remained unchanged at 0.3% MoM while easing below 4.0% prior on YoY to 3.9%, versus 3.8% expected.

In the case of the Fed talks, Cleveland Fed President Loretta Mester said, “We are not there yet to cut rates, we want more evidence the economy is progressing as expected.” However, Richmond Fed President Thomas Barkin mentioned that he is open to lowering rates once inflation is on track to 2%. On the same line, Federal Reserve Bank of Chicago President Austan Goolsbee showcased an inability to answer the question of what we'll do at the March meeting without data.

Earlier in the day, China's CPI improved from November to 0.1% MoM and -0.3% YoY while Producer Price Index (PPI) also rose to -2.7% from -3.0% prior and -2.6% market forecasts. Further, China's Trade Balance also increased to $75.34 billion compared to the previous readings of $68.39 billion and $74.75 expected.

Additionally, sluggish US Treasury bond yields and upbeat equities, as well as geopolitical tension in the Red Sea, also allowed the XAUUSD to defend the recovery moves.

The news of the US and UK’s joint attack on the Houthis and the reports suggesting the US Ambessy’s attack in Iraq, as well as the global appreciation to the West in their fighting to defend the Red Sea, allowed the market players to remain optimistic about a sooner end to the geopolitical tensions and help Gold’s demand. It should be noted that US President Joe Biden stated that he will not hesitate to direct further measures on Houthi targets in Yemen.

Also acting as a challenge to the market sentiment, as well as driving the XAUUSD demand, is the cautious mood ahead of Taiwan’s general elections, scheduled to take place this week. With China and the US at loggerheads, a victory of the pro-US government, which is less expected, could fuel risk aversion and favor the US Dollar.

It should be noted that the hawkish comments from European Central Bank (ECB) President Christine Lagarde and policymaker Francois Villeroy de Galhau put a floor under the Euro (EUR) and also challenged the US Dollar’s recovery. Further, the Bank of Japan (BoJ) officials showed mixed concerns about wages and inflation while challenging the broader view to defend easy-money policies. Elsewhere, the news that China’s crude oil imports reached an all-time high in 2023 joined the geopolitical tensions in the Middle East to underpin recovery in the Crude oil price.

• Strong buy: USDCAD, USDJPY
• Strong sell: Crude Oil, US Dollar, GBPUSD
• Buy: BTCUSD, ETHUSD, Nasdaq, Gold
• Sell: DAX, FTSE 100, BTCUSD, AUDUSD, EURUSD

US PPI eyed…

Although the US employment numbers and the CPI were in favor of the talks suggesting a delay in the Fed’s rate cuts, today’s PPI will be important to confirm the hawkish bias, which if matched with upbeat forecasts could underpin the US Dollar’s recovery and weigh on the commodities, as well as the Antipodeans.

May the trading luck be with you!