Gold retracement: Pulls back on Wednesday after Tuesday High

• Fed Chair Powell’s Testimony Shifts Market Sentiment, Driving Gold’s Retracement
• Implication of a stronger U.S. inflation data
• Technical view

The yellow metal rose in Asian trade on Thursday, after Wednesday’s retracement. Meanwhile, the record high created on Tuesday remains in sight, as optimism surrounding geopolitical tensions, market dynamics and amongst others ignited a risk on sentiment across board.

Fed Chair Powell’s Testimony Shifts Market Sentiment, Driving Gold’s Retracement

On Tuesday the 11th of February, Gold created a new level at $2,942.69 but several factors contributed to its retracement on Wednesday the 12th, which includes but not limited to the following:
During Tuesday’s testimony, the Fed Chair, Jerome Powell maintained there is no need to rush into rate cut since the economy is relatively stable and that rate cut would be considered if inflation decreases, or employment weakens. This made investors and traders to tilt to yielding assets. Furthermore, the yellow metal having created a notable high during previous trading session, investors and traders who were on long positions took some profits. These and amongst others contributed to the decline that was witnessed on Wednesday.
On the flip side, as a safe haven traders and investors tend to tilt to the yellow metal during risk off environment, this contributed to the recent surge that was witnessed and hence driving the prices of gold to a new level in recent time.

U.S. Inflation Data Surpasses Expectations, Impacting Gold and Fed Policy Outlook

A quick glance on the U.S inflation data of Wednesday, the 12th. By 5:30pm GMT +4 (Dubai time), the U.S. inflation data was on the news wire, the data points came in higher than expected, with the core CPI showing an increase of 0.4% as against 0.3% forecasted, CPI Month over Month increased by 0.2 %, while year-over-year saw a 0.1% increase. These readings validate the Fed’s standpoint of maintaining rate and not being in a rush for a cut.
Usually, a higher inflation would let the Fed keep rate high and on the other hand, causing gold to decline because it’s non-yielding asset and hence investors tend to tilt to bonds, USD etc.
Meanwhile, with the recent geopolitical tension surrounding the Russia-Ukraine peace treaty and President Trump's announcement of new tariffs on steel and aluminum imports have intensified global economic uncertainties. As a result, investors would likely stick to the yellow metal as a safe heaven, hence analyst predicts that Gold might likely be testing the $3000 psychological level soon.
 Before the release of these data points, market participants were cautious, given that this is the first inflation reading under the current Trump’s administration. However, with the upticks, attentions are now tilted towards Fed for necessary actions.

Technical View:
 

The yellow metal created a new level on Tuesday the 11th of February and as highlighted earlier. However, several factors caused Gold’s retracement.
As at the time of writing, 1:54PM GMT +4, gold spot is trading $2915.51 with a 0.38% increase. From technical perspective, gold spot is overall bullish. After creating the recent peak on Tuesday, and retraced as a result of profit taking, U.S. inflation data and amongst others. The price was supported at the 23.6 level of Fib, with price of $2,867.38. Meanwhile, the price is currently struggling below the resistance level of $2,929.53 while awaiting the next catalyst to drive prices. If the bullish momentum is sustained analyst expects Tuesday’s peak of $2,942.69 to be taken out, then price potentially targeting $2,950 and $2,960. On the flipside, a decline would potentially target the 23.6 level of Fib at $2,867.38 and then $2,837.75. Further breakout of these levels is not ruled out as per technical analyst.
Fig. 1 Gold spot 4H trading view.