Gold Price Forecast: For how long can the 200-DMA support hold?

Gold Price remains poised for a sustained move below the 200-DMA.
US dollar surges with yields on hotter than expected inflation data.
Daily technical setup continues to point to the downside for XAU/USD

Dhwani Mehta FXStreet

Gold Price is clinging onto the recent recovering gains, as bull-bear tug-of-war persists, as investors assess the implications of hotter than expected US inflation data. Although the US April Consumer Price Index (CPI) arrived at 8.3% YoY, beating 8.1% estimates, it was a tag lower than the previous reading of 8.5%. The monthly CPI came in at 0.3% vs. 0.2% expected and 1.2% last. The core CPI figures also outpaced expectations across the time horizon.

The upbeat US inflation data put the 0.75 bps June rate hike expectations back on the table, which triggered a fresh upswing in the US dollar alongside the yields. Gold Price refreshed three-month lows at $1,8835 in a knee-jerk reaction to the data release. Surging inflation re-ignited global growth fears, in the face of the aggressive Fed’s tightening bets. This led to the sell-off in Wall Street while risk-aversion seeped back. Amid falling stocks, Gold Price managed to find a floor and rebounded to close the day above the $1,850 psychological level.

In the first half of Wednesday’s trading, XAU/USD attempted a decent rebound from three-month lows, as the pre-US inflation repositioning and profit-taking spree knocked down the greenback while the Treasury yields also extended their pullback.

Looking ahead, Gold Price will continue to remain at the mercy of the US dollar price action and broader risk tone, as the Fed expectations and growth concerns keep leading the way. At the time of writing, risk sentiment remains tepid, with the S&P 500 futures paring back gains. Investors turn cautious ahead of the UK Q1 GDP report, in light of the BOE’s warnings of an incoming recession later this year.

Gold Price Chart: Daily chart

Gold Price tested offers below the critical 200-Daily Moving Average (DMA) at $1,836 on Wednesday, although bulls defended the latter allowing an impressive recovery.

The renewed upside in XAU/USD seems to be fading this Thursday, as the price is looking to surrender the previous week’s low and the psychological level at $1,850.

If the downside accelerates then a retest of the 200-DMA will be inevitable.

Daily closing below the latter is critical to unleashing more declines towards the February 10 lows of $1,822. The next key support is seen at the $1,800 round figure.

The 14-day Relative Strength Index (RSI) is trading flat to lower below the midline, suggesting that the bearish potential remains intact.

On the flip side, acceptance above Tuesday’s high of $1,865 is needed for Gold bulls to cement a meaningful recovery towards the horizontal 100-DMA at $1,884.

Further, the $1,900 mark will challenge the bearish commitments.

Author

Dhwani Mehta

FXStreet

Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.

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