Gold price wavers as inflation risk dims Fed rate cut expectations

Gold price has remained in consolidation mode in the new week as heightened inflation risk dims expectations of a Fed rate cut and bolsters the US dollar. Nonetheless, geopolitical tensions in the Middle East continue to support the bullion. In the new week, investors will also be eyeing the US CPI and PCE data for additional cues on the Fed’s policy outlook.

Gold price pauses winning streak as inflation risk rises

The historic gold price rallying experienced last year and into the current year was, among other factors, driven by expectations of a dovish Federal Reserve. However, the ongoing US-Iran war and subsequent inflation concerns are dimming investors’ rate-cut hopes. 

Amid the shipping disruptions at the all-important Strait of Hormuz, crude oil prices have rallied to three-digit numbers. At the time of writing, the global benchmark, Brent oil, was trading at $103 after easing from the four-year high hit earlier in the session at $119. 

With the subsequent inflation concerns, additional interest rate cuts by the Fed are not guaranteed. In fact, investors expect the US central bank will keep rates steady during its upcoming FOMC policy meeting on 18th March. Besides, there are increasing bets that the Fed will pause on any rate cut in its June meeting. Gold price tends to thrive in an environment of lower interest rates and as such, has repriced accordingly. 

Nonetheless, the hardliners have maintained their bullish positions as the US-Iran war enters its second week. Both parties have held tough stands as Iran accuses the US of looking to take over its oil facilities. 

In the ensuing sessions, participants in the gold market will also be eyeing the US CPI and PCE figures for further cues on the Fed’s policy outlook. The crucial inflation data comes after the recorded surge in unemployment. Recent data showed that the US economy unexpectedly lost 92,000 jobs in February, with the health sector being the worst hit. 

Gold price technical analysis

Gold price chart | Source: TradingView

Gold price loss in the just concluded week has ended the four-week winning streak, even as the ongoing US-Iran war offers steady support to the bullion. The precious metal began the new week in continuation of the consolidation observed since mid-last week. 

Even with the easing, it continues to hold steady above the psychologically crucial zone of $5,000, which has offered steady support for over two weeks now. At the time of writing, gold price was at $5,098; down by 1.4%. 

A look at its daily chart indicates that the bullion is at a crucial inflection point. Earlier on Monday, it momentarily dropped below the short-term 25-day EMA before rebounding above it. However, it has held steady above the medium-term 50-day MA. Besides, its current RSI of 52 hints at range-bound trading as the market eyes both the fundamentals and technicals.

In the immediate term, the range between the 25-day EMA at $5,062 and the resistance at $5,200 will be worth watching. If the bulls manage to reassert control, a breakout is likely with the next target at $5,369. On the flip side, a pullback past the crucial support at $5,000 will give the sellers a chance to retest the 50-day EMA at $4,888.