Gold softens as traders eye FOMC after stronger inflation data

Robust inflation data from the US continues to weigh on gold as traders pull back from the recent highs. So far, support has held the momentum above 2,150 as there is a lack of appetite to be a seller in the current market, but the upside remains slightly cloudy whilst the path of monetary policy remains unclear.

Stronger CPI and PPI readings allowed the US dollar and yields to recover some upside last week, which weighed on gold as a non-yielding asset. The FOMC meeting this week will be the key highlight for markets, and gold traders will likely be paying close attention. Markets are certain the Fed will not cut rates on Wednesday, but the verdict is still out on when the first cut will be delivered. The updated projections will hopefully give a clue as to where monetary policy is heading which could give gold traders some further direction.

Market caution is likely to remain in the next few days, pushing XAU/USD into sideways consolidation. The immediate momentum has a bearish bias but can quickly change if the takeaway from the FOMC meeting remains skewed towards rate cuts at some point this year. The longer-term outlook remains optimistic as the Fed has confirmed the next policy actions will be cutting, meaning monetary policy can only favour gold further in the future.

Gold (XAU/USD) daily chart

Past performance is not a reliable indicator of future results.

Ongoing political tensions are also keeping gold supported, as are concerns about future growth, even if recession fears seem to have been priced out. Technically, the last week has seen lower highs, creating a descending trend line resistance, currently at 2,165. The moving averages continue to support bullish momentum, whilst the RSI has dipped below 70 again, after peaking at the highest level in three-and-a-half years last week. There is still room for further pullback before new buyers are attracted, especially if the Fed continues to give hawkish feedback at the meeting.