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Gold Price Forecast: 200-DMA might cap XAU/USD ahead of US CPI on Wednesday

  • Gold refreshed multi-month tops on Monday, albeit lacked any strong follow-through buying.
  • A modest USD rebound held bulls from placing fresh bets and kept a lid on any further gains.
  • Inflationary concerns, deterioration in the global risk sentiment should help limit the downside.

Gold added to last week's strong gains and climbed to fresh three-month tops on Monday, albeit struggled to capitalize on the move. Friday's disappointing US monthly jobs report reaffirmed expectations that the Fed will keep interest rates lower for a longer period. This was seen as a key factor that continued benefitting the non-yielding yellow metal. Apart from this, a turnaround in the global risk sentiment – as depicted by the overnight sharp decline in the US equity markets – further underpinned the safe-haven XAU/USD.

The supporting factors, to some extent, were offset by a modest US dollar rebound from the lowest level since February 25. This, in turn, was seen as a key factor that capped gains for the dollar-denominated commodity. The downside, however, remains cushioned amid expectations for an uptick in US inflation – fueled by improving prospects for growth, plans for infrastructure spending and pandemic-related stimulus measures. Given that gold is considered a hedge against inflation, the market focus will remain on this week's US CPI report.

The combination of diverging forces held investors from placing any aggressive bets and led to a subdued/range-bound price action through the Asian session on Tuesday. In the absence of any major market-moving economic releases from the US, the USD price dynamics will play a key role in influencing the XAU/USD. Apart from this, comments by a slew of FOMC members and the broader market risk sentiment will allow traders to grab some meaningful opportunities during the second part of the trading action.

Technical levels to watch

From a technical perspective, the recent strong rebound from YTD lows, around the $1,677-76 region paused ahead of the very important 200-day SMA. The technically significant moving average is currently pegged near the $1,850 region, which should now act as a key pivotal point for short-term traders.

Meanwhile, RSI (14) on the daily chart has now moved on the verge of breaking into the overbought territory. Hence, any subsequent positive move is more likely to confront stiff resistance and remain capped near the $1,873-75 region. That said, some follow-through buying should allow bulls traders to aim back to reclaim the $1,900 mark for the first time since January 8.

On the flip side, the $1,817-16 region now seems to protect the immediate downside. Any subsequent decline might be seen as a buying opportunity and remain limited near the $1,800 mark. That said, a convincing break below might prompt some aggressive technical selling and has the potential to drag the XAU/USD back towards a strong horizontal resistance breakpoint, now turned support near the $1,765-60 region.

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Author

Haresh Menghani

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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