Gold Price Forecast: XAU/USD bulls cheer Fed pivot sentiment after US CPI miss

• The Gold price is making fresh bull cycle highs after the United States Consumer Price Index miss.
• The United States Federal Reserve interest rate announcement will be key for the Gold price.
• Gold price 4-hour chart shows the bears moving in and there are eyes on the prior resistance near $1,800. 

The Gold price is higher after US Treasury yields declined due to a report that showed that inflation in the United States was less than estimated last month. At the time of writing, XAU/USD is higher by 1.5% and has travelled from a low of $1,781.02 to a high of $1,824.52. 

The Consumer Price Index (CPI) rose +7.1% from a year earlier in November, compared with the consensus forecast for a +7.3% gain and the October reading of +7.7%. Prior to the data, markets were getting set in the case of a softer reading that could have been the catalyst for a dovish Federal Open Market Committee (FOMC) this week. As a consequence of the Consumer Price Index,  the curve bull steepened sharply as the market lowered the terminal Federal Reserve rate and increased the number of cuts being priced in. Risk assets found a bid with the US stocks rallying hard, the commodities complex up and the US Dollar down.

”Given the strength in core services inflation, it is clear the Fed will need to remain in a tightening mode beyond the December meeting. We will be looking for any Fed communication tomorrow regarding a further downshift in the hiking pace for the February meeting,” analysts at TD Securities said after today’s Consumer Price index. 

Federal Reserve and European Central Bank up next

The FOMC is meeting today and will wrap things up on Wednesday with their statement and interest rate decision followed by the Federal Reserve’s chairman, Jerome Powell, who will speak with the press. Jerome Powell’s press conferences are an event in themselves which can create immense volatility in financial markets. 

Money markets are currently pricing a 50bps Federal Reserve rate hike after four successive 75bps rate increases. However, changes in the peak rate or whether policymakers think there will be a need to become more hawkish could be more fundamental than the interest rate decision itself and that is where Jerome Powell will be pushed by the press.   

Nevertheless, another moderation in the monthly core Consumer Price Index in the United States has helped to reaffirm that the US Dollar peak could be here which is lifting spirits as reflected in the emerging market indexes. The Gold price, however, will now also depend on the outcome of the European Central Bank, (ECB) 

There is the risk that the ECB sounds and acts more hawkishly than the Fed this week. If this were to transpire, the US Dollar is going to have a hard time correcting whatever potential unwind comes of a dovish Federal Reserve and today’s inflation data.

ECB President Christine Lagarde will of course continue to underline their determination to fight inflation. 
”We expect a 50bps hike, but can’t completely rule out 75bps,” analysts at TD Securities (TDS) said.

”Focus is likely to be on Quantitative Tightening guidance, which the Governing Council has announced will come alongside the decision New forecasts are likely to show a worsening trade-off between growth and inflation, but the ECB likely only has another hike or two left before turning to QT as its main tool,” the analysts at TDS added. 

Gold technical analysis

The Gold price, as illustrated in the above daily and 4-hour charts, has carved out a bullish scenario, although there are prospects of a correction. Gold price 4-hour chart shows the bears moving in and there are eyes on the prior resistance near $1,800. This Gold price level correlates with a 50% mean reversion of the CPI rally and could serve as a foundation for further buying activity in the coming days.