Gold price extends recovery to near $2,040 as investors are optimistic about Fed rate cuts.

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• Gold price extends recovery to near $2,040 as investors are optimistic about Fed rate cuts.
• Investors ignore United States’ high consumer inflation data.
• Fed policymakers reiterate a restrictive monetary policy stance to achieve price stability.

Gold price (XAU/USD) delivers a swift recovery as investors are confident about an interest rate cut by the Federal Reserve (Fed) at its monetary policy meeting on March 20 – such a move would support non-yielding assets such as Gold. The probabilities of an early interest rate cut are assessed as firmer despite consumer price inflation in the United States remaining stubbornly high in December, amid a significant increase in rental prices and healthcare costs.

While market participants continue to commit funds toward Gold amid optimism over early rate cuts, Fed policymakers will stick to a restrictive interest rate stance as price pressures in addition to the required rate of 2% are highly sticky, due mainly to stable labor market conditions. Fed policymakers have been reiterating that a lot of work has yet to be done in order to gain confidence that the underlying inflation will return to 2% in a sustainable manner.

Bank of Chicago Federal Reserve President Austan Goolsbee, on Thursday, stressed a data-dependent approach and said that there were weeks and months of data to come, to help guide when and how much rates should be reduced. Cleveland Fed President Loretta Mester said she needed more evidence to confirm inflation declining towards 2% in a timely manner before jumping on the bandwagon of rate-cut discussions.

Gold price delivers a V-shape recovery after printing a fresh three-week low below $2,015. The 50-day Exponential Moving Average (EMA) has acted as a strong support for the Gold price bulls. The precious metal has managed to climb slightly above the 20-day EMA, which trades around $2,036. While the upside bias is intact, a bullish momentum has faded as the 14-period Relative Strength Index (RSI) is oscillating near 50.00.

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