Spot gold recovers the psychological US$2,000 mark, and the market focuses on US PPI for hints from the Federal Reserve
On Friday (February 16), gold prices fluctuated in the narrow range of 2002-2006. As of 15:03 Beijing time, spot gold was trading at $2,003.46 an ounce, down 0.04%.
Spot gold regained the psychological $2,000 mark, driven by a weaker dollar and lower US Treasury yields, which fell after weak US macroeconomic data. For context, US retail sales in January were weaker than expected, contracting 0.8% instead of the expected 0.1% drop, indicating that household consumption is starting to weaken.
Under normal circumstances, weak consumer spending could prompt the Fed to accelerate policy easing; however, the current situation is far from ordinary, with inflation well above the 2.0% target and showing extreme stickiness. As a result, policymakers may not take preemptive action to respond to signs of economic fragility.
With the US central bank currently focused specifically on restoring price stability and prioritizing this part of its mission, traders should keep an eye on the upcoming Producer Price Index survey on Friday. Forecasts show that the headline PPI fell to 0.6% year-on-year in January from the previous 1.0%, and the core indicator fell to 1.6% from 1.8% in December.
While weak PPI data could be positive for gold prices, an unexpected increase in line with the CPI report released earlier this week should have the opposite effect. The CPI report showed that progress in slowing inflation has slowed. In the latter scenario, we could see yields and the dollar rise in tandem as the market unwinds dovish rate bets. This should be negative for gold.
Gold price technical analysis
(4-hour spot gold trend chart source: Yihuitong)
Gold prices rebounded from overlapping support at $1,990 on Thursday and headed for technical resistance at $2,005. If the bulls break this barrier in the coming days, we could see a rebound towards the 50-day simple moving average at $2,030. If the price strengthens further, all eyes will be on $2,065.
On the other hand, if the sellers regain the upper hand and trigger a bearish reversal from the current levels, gold prices will trade around $1,990, and then $1,975. From now on, more losses could keep the focus on the 200-day moving average near $1,965.
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