Gold Price Bounces From Multi-Week Low But Upside Remains Limited Ahead of US CPI Data

Gold price (XAU/USD) has seen some positive movement on Thursday, bouncing off a nearly three-week low and snapping a six-day losing streak. However, this uptick lacks solid bullish conviction, with the market awaiting the release of the crucial US Consumer Price Index (CPI) report, which will likely influence future Federal Reserve (Fed) rate decisions and gold’s direction.

Market Overview: Gold Price Movement and Key Factors

The gold price has recently been in a downtrend, testing the $2,605-$2,604 range, its lowest point in nearly three weeks. The recent decline has largely been driven by expectations surrounding the Fed’s upcoming interest rate cut and the strong performance of the US Dollar (USD), which has acted as a cap on any meaningful gold price recovery.

The slight rebound in gold prices could be attributed to repositioning trades ahead of the US inflation data release. Investors are closely monitoring the CPI numbers as these figures may impact the size of the Fed’s next rate cut in November. Given the non-yielding nature of gold, expectations for a rate cut are key drivers for its price movement.

US Dollar Strength Limits Gold Price Gains

The consensus among market participants is that the Fed will likely lower borrowing costs by 25 basis points (bps) in November. This expectation has led to elevated yields on US government bonds, keeping the USD at an eight-week high. The continued strength of the USD presents a challenge for gold prices, which typically move inversely to the dollar.

The benchmark 10-year US Treasury yield remains above the 4% mark, further dampening gold’s potential for a strong rally. Gold’s upside potential is capped as long as the USD remains bullish and interest rates continue to provide attractive returns to investors in government bonds, reducing demand for the non-yielding yellow metal.

XAU/USD Daily Price Chart

Source: TradingView, prepared by Richard Miles

Daily Digest of Market Movers: Limited Upside for Gold Amid Fed Speculations

FOMC Meeting Minutes: Insights Into Fed’s Rate Cut Plans

The minutes from the September Federal Open Market Committee (FOMC) meeting revealed that the majority of Fed officials supported a 50 basis point rate cut, with confidence that inflation is moving toward the 2% target. However, some participants favored a more conservative 25 bps rate reduction, citing factors such as:

• Elevated inflation
• Solid economic growth
• Low unemployment rate

This debate among Fed officials has kept the USD strong, pushing it to near a two-month high, which limits the upside for gold.

Fed Officials’ Perspectives on Future Policy

Several key Fed figures have weighed in on the ongoing debate regarding rate cuts:

• Dallas Fed President Lorie Logan highlighted uncertainties in the economic outlook, supporting smaller rate reductions in the future.
• Boston Fed President Susan Collins emphasized that policy decisions will remain data-driven, stressing the need to maintain a healthy labor market.
• San Francisco Fed President Mary Daly indicated that one or two more rate cuts this year are likely but clarified that the 50 bps cut in September doesn’t guarantee the size of future cuts.

Upcoming US CPI Report: The Next Key Driver for Gold

Investors are now pricing in a higher chance of a 25 bps rate cut in November, with a 20% probability that the Fed might leave rates unchanged. The upcoming US Consumer Price Index (CPI) report is expected to provide fresh impetus for the market. If inflation data comes in higher than expected, it could reinforce the USD’s strength and limit gold’s potential for significant gains.

Geopolitical Tensions Supporting Gold as a Safe-Haven Asset

Beyond the Fed’s monetary policy, geopolitical tensions between Israel and Iran are providing some support to gold as a safe-haven asset. Israeli Defence Minister Yoav Gallant’s warning of a “lethal, precise, and surprising” strike against Iran has increased risk aversion in the markets. This could lend support to gold prices in the short term, especially if the geopolitical situation escalates.

Technical Outlook: Bearish Sentiment for Gold Dominates

Short-Term Trading Range Breakdown

From a technical perspective, the gold price recently broke below the $2,630 level, which marked the lower boundary of its short-term trading range. This breakdown has strengthened the case for bearish traders. While oscillators on the daily chart are still in positive territory, they have been losing traction. The price has managed to hold above the $2,600 mark, but traders are waiting for a decisive break below this level before positioning for further downside.

If gold breaks below the $2,600 level, it could extend its losses towards the $2,560 support zone. From there, the next major targets are the $2,535-$2,530 region, with the potential for a decline towards the $2,500 psychological mark if bearish momentum continues.

Immediate Resistance Levels

On the flip side, the $2,630-$2,635 range, which acted as the lower boundary of the recent trading range, now serves as an immediate resistance level. A move beyond this zone could provide some short-term bullish momentum, but any gains are likely to be capped around the $2,657-$2,658 horizontal barrier.

If the price manages to break through this resistance, the next key level to watch would be the $2,670-$2,672 supply zone. Beyond this, bulls might aim to challenge the all-time high near the $2,685-$2,686 region, reached in September. A sustained move beyond the $2,700 mark would signal a continuation of the multi-month uptrend, but for now, this seems unlikely given the current market conditions.

Limited Upside for Gold Amid Fed Uncertainty and Strong USD

While gold has managed to bounce off its multi-week low, the overall market sentiment remains cautious. The combination of a strong USD, elevated bond yields, and uncertainty surrounding the Fed’s future rate cuts suggests that the upside for gold remains limited in the near term. Traders should keep a close eye on the upcoming US CPI report for clues about inflation and the Fed’s next steps, as this data will likely set the tone for gold’s direction in the coming weeks.