Due to U.S. Inflation Issues, The Price of Gold Has Remained Near $1,800

Stickier-than-expected Inflation in the United States is becoming a problem for gold, holding it around $1,800, with technical charts showing a decline to $1,700 if no clear breakout occurs.

Wednesday's closing price for gold for April delivery on the New York Comex was $1,845.30 per ounce, a decrease of $20.10, or 1%.

The spot price of gold, which some traders track more closely than futures, was $1,837.97 at 16:00 ET (21:00 GMT), down $16.50 (or 0.9%).

Initially, it was anticipated that gold would surpass $2,000 per ounce in the first quarter of this year, reversing the decline experienced in April 2022. Gold futures reached 10-month highs near $1,975 before the release of the January U.S. non-farm payrolls report, which revealed massive employment gains and reignited inflation fears. In the aftermath, gold fell below $1,830 before rising to roughly $1,875.

The release of this week's Consumer Price Index, or CPI, report for January on Tuesday further exacerbated U.S. inflation concerns, causing gold to fall below $1,850.

Higher-than-anticipated monthly CPI fueled concerns that the Federal Reserve may resume its aggressive stance on U.S. interest rates, just when the central bank appeared to be easing up on monetary tightening.

Sunil Kumar Dixit, chief technical strategist at SKCharts.com, stated that the $1,830 level needed to be maintained for the spot price of gold to return to near the $1,870 level. Gold's charts indicate that the $1,830 level was crucial for the spot price of gold to recover to near the $1,870 level.

"Sustainability below $1,878, or the 23.6% Fibonacci level of retracement measured from the low of 1,616 to the high of 1,960, has led to the continuation of the correction in spot gold into the next leg down of $1,828," said Dixit.

"A rebound to 1,860 followed by 1,868 cannot be ruled out if prices fail to fall below $1,830 in a sustainable manner."

However, Dixit erred on the side of caution, stating that a break of that support was likely if U.S. inflation fears continued to rise, hence boosting the Dollar Index and U.S. 10-year Treasury note yields, gold's twin adversaries.

"If 1,828 is clearly broken with a weekly closure, spot gold might fall to $1,788, or the 50% Fibonacci level," he continued.

Unfortunately, gold bulls are caught in the crosshairs of the central bank's war on inflation. Every dollar and Treasury yield increase has become a chance to sell gold.

Historically, gold prices rose with inflation as investors purchased the metal as a "hedge" or store of value against the currency, which normally loses value when the cost of goods and services increases. This was during typical times when strong economic news was good for risk assets.

Now, good economic news — particularly about U.S. jobs and pay — is bad because it has the potential to increase inflation, causing the Federal Reserve to increase interest rates and harming everything from equities to gold and oil. Thus, the positive correlation between gold and inflation has broken down and is predicted to continue until the Fed pays less attention to interest rates.

In the previous year, the Fed has boosted interest rates by 450 basis points, bringing them to a peak of 4.75 percent from 0.25 percent after the COVID-19 outbreak in March 2020. As annual inflation reached four-decade highs, the central bank began with a modest 25 basis point increase in March 2022, increasing it to 50 basis points the following month before starting on four massive 75 basis point increases between June and November of last year. Subsequently, the Fed moderated the pace of monetary tightening, returning to a 50-basis-point boost in December and a 25-basis-point hike this month.