Gold Prices Under Bearish Pressure Amid Economic Uncertainty

Introduction

Gold prices continue to experience bearish pressure as they pulled back to the 38.2% Fibonacci retracement level within a bearish channel. This retracement has raised concerns that the precious metal may establish new lower lows, potentially testing the $1,907.00 level or even falling deeper to the previous support around $1,885.00. Several factors, including the upcoming US Consumer Price Index (CPI) data and economic uncertainty, are influencing the outlook for gold.

US CPI Data and Fed’s Rate Hike Path

The upcoming US Consumer Price Index (CPI) data is eagerly awaited by investors, as it will provide crucial insights into the Federal Reserve’s (Fed) future rate hike path. After the widely anticipated pause in September, a stronger US CPI print could reaffirm market expectations of further policy tightening by the Fed. This scenario could set the stage for another leg down in gold prices. Notably, the markets have been pricing in the possibility of one more 25 basis point (bps) rate hike by the end of this year.

The optimistic sentiment regarding additional Fed rate hikes was fueled by upbeat US macroeconomic data released last week. These data points pointed to a resilient US economy and solidified the Fed’s ability to maintain higher interest rates for an extended period. The hawkish outlook has supported elevated US Treasury bond yields and briefly propelled the US Dollar (USD) to a six-month high last week. Although the USD witnessed some profit-taking on Monday and traded near multi-day lows on Tuesday, it still provides some support to gold prices.

Cautious Market Mood and Safe-Haven Appeal

The prevailing cautious mood in equity markets is another factor bolstering gold’s status as a safe-haven asset. Investors remain concerned about deteriorating economic conditions in China, the world’s second-largest economy. These concerns, combined with worries about headwinds from rapidly rising borrowing costs, have curbed enthusiasm for riskier assets and led to some haven flows into gold.

Upcoming Events and Prudent Trading

Traders appear hesitant to place aggressive bullish bets and are waiting on the sidelines ahead of the US CPI report. Additionally, the highly anticipated European Central Bank (ECB) meeting scheduled for Thursday is expected to provide further direction for gold prices. Analysts are divided on whether the ECB will continue its historic policy-tightening cycle with a 10th consecutive interest rate hike or pause due to a darkening economic outlook in the Euro Zone.

Key data releases and central bank events will help investors determine the next direction for gold prices. As a result, it is prudent to wait for strong follow-through buying signals before considering positions for a potential recovery from the $1,885 region or the five-month trough touched in August. The evolving economic landscape and central bank policies will continue to influence the outlook for gold in the coming days and weeks.