- Gold price hovers around $2,180.60, steadying as traders anticipate February’s CPI release.
- Core inflation expectations set to influence the US Dollar and potentially bolster Gold’s position.
- Following Powell’s testimony, Gold’s near breakthrough to $2,200 underlined XAU’s price sensitivity to Fed policy and inflation trends.
Gold prices were virtually unchanged late in the North American session with traders bracing for the release of February’s US Consumer Price Index (CPI) data, which is estimated to stay unchanged for headline figures. Core data is foreseen cooling down, which would weigh on the US Dollar and boost XAU/USD. At the time of writing, Gold price trades at $2,180.60, almost flat.
Last week, Gold price printed an all-time high of $2,195.15, shy of cracking the $2,200 figure following US Federal Reserve (Fed) Chair Jerome Powell’s testimony at the US Congress, in which he acknowledged that inflation is heading lower. Powell noted that eventually, the Fed would begin to ease policy but emphasized that the central bank remains data-dependent. Despite saying the US central bank is close to feeling confident that inflation is edging lower, the Fed Chair said they’re in no rush to cut borrowing costs.
Daily digest market movers: Gold’s last leg up sponsored by weak US NFP data
- The US labor market is cooling down despite printing solid gains in February compared to “downward revised” figures from January. After two months of net revisions, the US jobs market totaled a loss of -167,000 jobs compared with initial prints, which sparked a reaction from interest rate futures traders.
- According to the CME FedWatch Tool, expectations for a May rate cut remain low at 22%, but the odds are at 69% for June.
- February US CPI is expected to rise from 0.3% to 0.4% MoM and remain unchanged at 3.1% YoY.
- Core CPI is estimated to drop from 0.4% to 0.3% MoM and from 3.9% to 3.7% YoY.
- Federal Reserve officials last week expressed that they remain data-dependent and want to feel secure that inflation is sustainably trending toward the Fed’s 2% goal. Therefore, Tuesday’s inflation report would be relevant, as a jump in prices could trigger a U-turn in XAU/USD prices.
- XAU/USD is being capped by US Treasury bond yield recovery as the 10-year benchmark note rate gained two basis points at 4.094%.
Technical analysis: Gold stays firm near all-time highs near $2,180
Gold’s rally appears overextended after extending toward the $2,180.00 figure. Even though the Relative Strength Index (RSI) is overbought above the 80 level, RSI’s slope aims up, suggesting that buyers remain in charge. If buyers push the XAU/USD price above the ATH at $2,195.15, that could open the door to testing $2,200.00.
On the flip side, if XAU/USD falls below March’s 8 low of $2,154.17, a drop toward the $2,150.00 figure is on the cards. Further support is seen at $2,100.00, ahead of the December 28 high at $2,088.48 and the February 1 high at $2,065.60.
Central banks FAQs
Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.
A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.
A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.
Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.
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