• Gold Price eases from five-week highs of $1,879 on firmer yields, USD.
  • Inflation-linked growth fears and China’s covid resurgence weigh on risk sentiment.
  • XAU/USD hits 50 DMA resistance, then retreats. Fed takes center stage this week.

The market anxiety over an incoming recession shot through the roof after the US inflation surged to 8.6% YoY in May, hitting a fresh 40-year high. The median forecasts were for an unchanged reading of 8.3% in the reported period. In an immediate reaction to the critical US Consumer Price Index (CPI) release, gold price hit a three-week low at $1,825, as the dollar soared alongside the Treasury yields on a spike in aggressive Fed tightening bets. The CME FedWatch Tool showed a 26.8% chance of a 75 bps Fed rate hike at the June 15 meeting. Investors reassessed the impact of rapid and bigger rate rises by the Fed on the economic growth, as major US investments back predicted the economy tipping into recession this year. Intensifying growth and inflation fears saved the day for gold bulls, as the price staged a solid rebound from multi-week troughs to clock fresh monthly highs at $1,876 on Friday. The collapse in the Wall Street indices amid heightening risk-off mode also helped XAUUSD to regain its safe-haven status.

Gold price set a new five-week top at $1,879 in the Asian trades at the start of a new week on Monday. Bulls, however, failed to hold at higher levels and drove the bright metal back below the $18,50 level. Risk-off flows extended as China’s covid resurgence and inflation worries continued to haunt markets, benefiting the dollar. Meanwhile, yields held onto the recent advance, with the two-year surging to the highest level since 2008 on increased bets of a more than 50 bps Fed rate hike in June. This snapped the renewed uptrend in the precious metal. The fact the greenback also hit monthly tops near 104.50 vs. its major peers, mainly driven by the fresh upswing in USD/JPY, also warranted caution for XAU bulls.

Going forward, all eyes remain on the Fed decision due later this week on Wednesday, especially after the hot US inflation. The American calendar appears data-scarce this Monday, therefore, the Fed-driven sentiment and the price action in the bond market will influence gold price.

Gold Price Chart: Daily chart

The daily chart shows that the gold price rebounded firmly after finding strong support near $1,825 on Friday.

The renewed upside in the price conquered the confluence of the horizontal 21 and 200 Daily Moving Averages (DMA) at $1,842.

But bulls ran into the stiff resistance at the 100 DMA at $1,882 in early trades, recalling sellers and exposing the $1,860 demand area once again.

A sustained move below the latter will call for at test of the $1,850 psychological level. The upward-pointing 21 DMA at $1,848 will be next on sellers’ radars.

The 14-day Relative Strength Index (RSI) is turning lower while above the midline, justifying the renewed weakness in the metal.

Alternatively, XAU buyers need to find a strong foothold above the 50 DMA barrier to unleash the further upside towards the mildly bullish 100 DMA at $1,890.

The next relevant upside target is pegged at $1,900, the round level.

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