Gold plunges below $2,000 after hot US CPI

The selling pressure around prices of the yellow metal gathers extra steam after Wall Street's opening, with XAU/USD trading below the critical $2,000 mark as resurgent inflationary pressures in the US economy further weigh on rate cut odds.

Technical Overview

From a technical perspective, the case for an XAU/USD continued decline has become stronger. The pair met sellers around a bearish 20 Simple Moving Average (SMA) in the daily chart, bottoming at around a bullish 100 SMA, with the latter providing dynamic support at $1,990. 0. Technical indicators, in the meantime, offer firmly bearish slopes within negative levels, reflecting the strong selling interest.

The 4-hour chart shows technical indicators keep heading south despite developing in oversold territory, warning of potential downward exhaustion. Still, it could mean some consolidation before the next directional move as there are no other signs of a possible recovery. Finally, XAU/USD develops far below all its moving averages, with the 20 SMA accelerating its slide below the longer ones, at around $2,022.

Support levels: 1,989.90 1,976.50 1,962.70

Resistance levels: 2,005.90 2,018.50 2,032.10

Fundamental Overview

Spot gold collapsed on Wednesday following the release of United States (US) inflation figures. XAU/USD traded as low as $1,989.97, its lowest in two months, and currently changes hands at around $1,993 a troy ounce.

The US Dollar traded with a weak tone throughout the first half of the day but drastically changed course following the release of the US Consumer Price Index (CPI). The US Bureau of Labor Statistics (BLS) reported that the CPI rose 0.3% MoM in January, while the core reading in the same period printed 0.4%, surpassing the market’s expectations. Compared to a year earlier, inflation rose 3.1%, better than the previous 3.4% but above the 2.9% expected. Finally, the core annual CPI rose 3.9%, matching December’s reading but surpassing the market’s forecast of 3.7%.

Stronger than anticipated inflation figures confirmed the Federal Reserve´s (Fed) stance of extending the waiting period before shifting to tighten the monetary policy through rate cuts. As a result, financial markets turned risk-averse, with stocks plummeting, government bond yields soaring and the US Dollar making the most out of it, strengthening against all major rivals.