- Gold sees gains pared back after Eu and China vow to counter US tariffs.
- A US-brokered ceasefire deal on Ukraine is up for Russia to consider.
- Traders are awaiting the upcoming US inflation data on Wednesday.
Gold’s price (XAU/USD) turns flat to $2,915 at the time of writing on Wednesday ahead of the United States (US) Consumer Price Index (CPI) release for February. Market consensus is for a deceleration in all inflation measures, both monthly and yearly gauges. However, many analysts and economists have commented that the current US tariff approach will be inflationary for the US, which could trickle through in the numbers.
Meanwhile, traders are still cautious about tariffs after the Chinese Minister of Foreign Affairs Wang Yi commented that if the US wants to suppress China with its steel and aluminum tariffs. Europe, meanwhile, committed to putting countermeasures in place by April 13. On the geopolitical side, a ceasefire deal in Ukraine brokered by the US has been put forward to Russia for consideration.
Daily digest market movers: CPI to move Fed bets
- Chinese consumption stocks rise as the nation’s annual political gathering wraps up with support for domestic demand. Hong Kong jewelers lead the gains, bolstered by haven demand for Gold proxies, Bloomberg reports.
- Wall Street is growing angsty as investors become increasingly unnerved by whipsawing tariff policy, sticky inflation, and the unknown pace of the Federal Reserve’s (Fed) interest-rate easing. Market forecasters at banks, including JPMorgan Chase & Co. and RBC Capital Markets, have tempered bullish calls for 2025 as Trump’s tariffs stoke fears of slowing economic growth, Bloomberg reports.
- The CME Fedwatch Tool sees a 97.0% chance for no interest rate changes in the upcoming Fed meeting on March 19. The chances of a rate cut at the May 7 meeting currently stand at 39.5%.
Technical Analysis: Moving rates
Relentless – that is wording that comes to mind when thinking about both the headlines on tariffs and the move in Gold this week. The Monday dip was bought eagerly, while Bullion now makes its way to test the monthly cap around $2,930. Once that level breaks, a move toward a new all-time high is back in the cards.
Gold is back above the $2,900 round level and, from an intraday technical perspective, it is back above the daily Pivot Point at $2,906. Gold is on its way to the R1 resistance near $2,931, converging with last week’s highs. Once through there, the intraday R2 resistance at $2,947 comes into focus on the upside ahead of the all-time high of $2,956.
On the downside, the Wednesday Pivot Point stands at $2,906. In case that level breaks, look at the S1 support around $2,890. The S2 support at $2,864, coinciding with the February 12 low, should avoid any further downturn.
XAU/USD: Daily Chart
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.