Gold continues to trade under pressure, declining after the January CPI report released Tuesday showed that year-over-year inflation fell to 6.4%. The CPI report for January was lower by 6.4% than the previous month.
However, analysts had expected a larger decline, expecting Tuesday's report to be between 6.2% and 6.3%. When combined with last week's unexpected employment report, the collective information will allow the Federal Reserve to maintain its aggressive stance, which means further interest rate hikes and that rates will remain elevated for much longer.
Chairman Powell was determined to maintain higher rates throughout the calendar year. Market participants are beginning to recognize the high likelihood that the Fed will cut rates to 5.1%–5.2% and keep them high without cutting rates in 2023.
While gold has been trading under pressure, there is a bullish undertone that could come into play at some point. The dollar is gaining strength against other currencies, but for Americans, the dollar's purchasing power continues to decline, a byproduct of higher inflation.
The national debt continues to grow, and the United States has reached its debt ceiling. Consequently, the government will have to raise the debt ceiling, which means that the United States will increase its national debt to a higher level.
Another factor putting pressure on gold is recent data that suggests the Federal Reserve may change its current target rate from 5.1% to 6% to accelerate the process of reducing inflation.
Essentially, gold benefits from higher inflation, and higher interest rates hurt. This is because gold does not provide the yield that makes U.S. Treasuries and other interest-bearing assets more profitable.
Although the current fundamentals have had a strong impact, which led to a decrease in the price of gold, technical factors are also present.
Analysts believe that although the price may drop lower, at the moment, gold is oversold.