Gold futures fall towards ‘critical support point’ of $2,000 an oz. after inflation report

April gold
GC00,
-1.28%

GCJ24,
-1.28%,
which is the most-active gold futures contract, was down $25.20, or 1.2%, at $2,007.80 an oz. on Comex after buying and selling as little as $2,002.80. On low quantity, the front-month February gold contract
GCG24,
-1.30%
was down $26.20, or 1.3%, at $1,992, which additionally marks its low of the session.

Both contracts touched their lowest intraday ranges up to now this yr, and settlements under $2,000 for the contracts could be the bottom since Dec. 13, in line with Dow Jones Market Data.

The weak point in gold costs is primarily a results of the “warmer-than-expected” consumer-price index information launched Tuesday, mentioned Koos. “This indication of persisting inflationary pressure supports the case for continued (or enhanced) monetary policy tightness by [Fed Chairman Jerome] Powell and the Fed.”

Consumer costs rose a sharper-than-expected 0.3% in January. The index was forecast to rise 0.2% by economists polled by The Wall Street Journal.

The yearly price of inflation slipped to three.1% from 3.4% within the prior month. It hasn’t been under 3% since March 2021.

Both the headline and core CPI figures exceeded forecasts as inflation remained “stubbornly higher than hoped,” mentioned Bas Kooijman, chief government officer and asset supervisor of DHF Capital in emailed commentary.

U.S. Treasury yields climbed larger in response, with 2-year yields
BX:TMUBMUSD02Y
surpassing 4.6%, including to the stress on gold costs, he mentioned.

The U.S. greenback additionally strengthened, with the ICE U.S. Dollar Index
DXY
up 0.6% at 104.82 in Tuesday dealings, weighing on dollar-denominated gold costs. “The currency has been improving since the beginning of the year and “could continue to do so if interest rates remain high,” mentioned Kooijman.

“Hopes for an interest rate cut in May declined significantly after the inflation data release and have now shifted toward June,” he mentioned. “High interest rates for longer could weigh on gold’s prospects over the coming weeks.”

However, gold might discover “some support over the medium term as markets continue to see rate cuts happening later this year,” mentioned Kooijman. Additionally, “geopolitical developments and potential economic issues in other regions could attract investors toward the asset.”

On a technical buying and selling degree, the important thing resistance degree of round $2,074 might be key to observe, mentioned Koos.

Gold has been in a “huge, broad consolidation pattern since way back in June of 2020, with several failed attempts to break above” that key resistance degree, he mentioned. “This ‘tug-of-war between bullish and bearish forces continues to persist as the market fears the next Fed meeting and how the CPI data might cause [the central bank] to react.”

A breakout above $2,074 would be an “enormous event for gold through year-end, assuming it can hold,” Koos said.

“When an investment of any kind hits all-time-highs, the only sellers that remain are those looking to take profits — and those sellers don’t normally have an effect on investments in massive, long-term, bearish methods,” he mentioned. Most-active gold futures reached a document settlement at $2,093.10 in late December.

“As inflation cools, the Fed calms, and interest rates fall, gold will eventually break out above that iron ceiling [of $2,074] and when it does, you can probably expect to hear people start coming out of the woodwork as former bears morph into bulls on the yellow metal,” mentioned Koos.