The price of gold experienced a sharp decline on Tuesday after the release of the US Consumer Price Index (CPI) report. The report indicated that inflation rose to 3.2% YoY in February, exceeding forecasts and prompting a significant increase in US Treasury yields.
- Gold fell over 1% after the US CPI report was released, dropping from a high of $2,184.76 to trade at $2,157.00 per troy ounce.
- The rise in inflation and stronger US Dollar Index (DXY) contributed to gold's decline.
- The US 10-year Treasury yield increased by five basis points to 4.151%, reflecting the market's expectations of higher interest rates.
Impact of US Inflation Data
The US CPI report exceeded expectations, indicating that inflation is still a concern for the Federal Reserve (Fed). The higher-than-anticipated inflation figures raised expectations that the Fed may need to maintain a tighter monetary policy, which could limit gold's upside potential.
Technical Analysis
The Relative Strength Index (RSI) indicator fell below 80.00, suggesting that gold's rally may be overextended. Support levels are seen at $2,150.00, $2,123.80, $2,100.00, $2,088.48, and $2,065.60. Resistance levels are at $2,184.76, $2,195.15, and $2,200.00.
Fed and Gold
The Fed's monetary policy actions significantly impact the price of gold. When the Fed raises interest rates, it makes holding gold less attractive compared to interest-bearing assets. Conversely, when the Fed lowers interest rates, gold tends to perform well due to its safe-haven appeal.
Table: Market Movers
| Event | Expectation | Result |
|---|---|---|
| US February CPI MoM | 0.3% | 0.4% |
| US February CPI YoY | 3.1% | 3.2% |
| Core CPI MoM | 0.4% | 0.4% |
| Core CPI YoY | 3.7% | 3.8% |
Subheadings:
1. US Inflation Data
The US CPI report indicated that inflation is still a concern for the Fed, as it exceeded expectations and prompted a jump in US Treasury yields. This weighed on the price of gold.
2. Technical Analysis
Gold's rally appears to be overextended, as the RSI indicator has fallen below 80.00. Support and resistance levels are outlined above.
3. Fed and Gold
The Fed's monetary policy actions significantly impact the price of gold. Investors closely monitor the Fed's statements and actions for cues on the future direction of interest rates.
4. Market Movers
Key market movers related to the gold rally have been summarized in the table provided.