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Gold waiting to break the shackles from $2000

Gold is in a current correction phase after scaling the heights above $2000 earlier this month. Price action can always be more cautious as an asset approaches a big round number and psychological level like this. These areas are frequently zones of resistance or support and so can change the way market participants react. That means they may bring about changes in trend and possible reversals. Or markets are simply pausing and in consolidation mode ahead of a break higher in line with the dominant longer-term trend.

 We note that it is often the case that the longer prices trade sideways in a tight range, the bigger the breakout will be. Gold has enjoyed a falling dollar and Treasury yields really since last autumn when it found support and bounced off $1614. But those key drivers of the precious metal which offers no yield have slowed recently. Much will now depend on today’s inflation data and the Fed meeting next Wednesday.

Upcoming risk events could be key catalysts

Today sees the release of US core PCE inflation data which is the Fed’s favoured price measure. This includes a wider section of both businesses and consumers and is expected to rise 0.3% m/m and 4.5% y/y. The monthly number would be in line with February while the annual figure would be one-tenth lower than the prior month. The report is likely to confirm the ongoing fall in price pressures in March, though the core run rate is still set to remain too high for the Fed and its 2% target.

Markets have nailed on a 25bp rate hike at the FOMC meeting next week. That means hints around the future policy path will be key with the tone of the statement and Chair Powell’s language in the press conference in the spotlight. There are around 65bps of rate cuts priced in by the end of this year as inflation is set to ease as economic activity slow, so any pushback on this will lift the dollar and hurt gold. Ongoing background noise will be provided by the debt-limit fight and banking sector concerns in the US which could add support to the precious metal as a haven asset.

Price action trapped

The current range in gold is between $1969 and $2015. The hugely psychological level of $2,000 is the first initial resistance above. A move beyond $2015 would target the April high at $2047 ahead of the top from March 2022 at $2070. Key support after the range low at $1969 is the February top at $1959.



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