Gold price shows signs of stability after a sharp 3% drop on Monday, holding steady around the $3,200 mark early Tuesday. As traders anticipate the release of high-impact US Consumer Price Index (CPI) data, the gold market braces for the next directional move.
Gold Price Consolidates Ahead of Key CPI Data
The price of gold has managed to recover slightly during Tuesday’s Asian trading session as the US Dollar (USD) pulls back after its recent rally driven by news of a US-China trade truce.
Following trade discussions in Geneva, both the US and China agreed to a temporary tariff reduction. The US will lower tariffs on Chinese imports from 145% to 30%, while China will cut duties from 125% to 10% during the 90-day negotiation period.
This de-escalation in the trade war has led to increased risk flows, fueling optimism around the global economy and easing concerns about a potential US recession. Consequently, this has reduced market expectations for aggressive Federal Reserve (Fed) rate cuts, which boosted the USD at the expense of gold, a traditional safe-haven asset.
Additionally, geopolitical factors such as a ceasefire between India and Pakistan and optimism surrounding Russia-Ukraine peace talks contributed to the downward pressure on gold.
However, with the US CPI data due later in the day, gold’s movement is likely to depend on the outcome. The market expects the headline annual US CPI to rise by 2.4% in April, maintaining the same pace as in March, while core CPI is expected to remain at 2.8%.
Key Drivers and Market Sentiment
A stronger-than-expected CPI result could reinforce the hawkish sentiment surrounding the Fed, boosting the USD and potentially sending gold lower. On the other hand, if CPI data comes in weaker than expected, it could reignite speculation for Fed rate cuts, supporting gold’s recovery.
However, the market’s focus may also shift to any developments from the Trump administration regarding trade talks, which could overshadow the CPI data release and affect gold prices.
Gold Technical Analysis
Gold price breached the 21-day Simple Moving Average (SMA) at $3,313 on Monday, signaling further downside. The 14-day Relative Strength Index (RSI) has also turned bearish, dipping below the midline for the first time since early April.
Currently, the RSI is hovering near 49, indicating a struggle between buyers and sellers. Should the CPI data surprise to the upside, gold could face further declines, potentially reaching the 50-day SMA at $3,145, with further support seen at $3,100 and the April 10 low of $3,072.
However, if the CPI data shows weaker inflation, gold could regain the 21-day SMA at $3,311 and potentially test the falling trendline resistance at $3,430. A sustained move above this level would open the path to new highs, with the next target at $3,500.
