Gold Price Forecast: For how long can XAUUSD defend $1,700?

Gold price is fading its stellar recovery this Thursday, although remains well above the $1,700 mark, having witnessed a steep drop to a fresh 11-month low of $1,707 reached a day before.

The bright metal broke this week’s consolidation range to the downside and resumed its previous week’s bearish momentum. Bears remain in complete control following a sustained move below the critical $1,800 threshold on July 6.

Also read: Gold Price Forecast: Post-CPI recovery stalls below critical resistance

Gold Price in the hands of the US dollar

The US dollar witnessed a good two-way price movement on Wednesday following the all-important Consumer Price Index (CPI). In an initial reaction to the top-tier US inflation data, the greenback rallied to fresh two-decade highs against its major peers at 108.58. Bulls, however, failed to sustain at higher levels amid a renewed spell of risk-aversion on global stocks.

US inflation hits record high in June

The closely-watched indicator by the Fed, the US inflation, advanced to 9.1% YoY in June vs. 8.8% expectations, hitting the highest level in four decades. The Core CPI, which excludes volatile food and energy prices, came in at 5.9% in the same period from the 6% previous figure but exceeded expectations of 5.8%. Hotter CPI in the world’s largest economy suggested no signs of inflation peaking.

Deeper Treasury yield curve inversion

The scorcher of the US inflation amplified ongoing concerns over a potential recession. The two-year Treasury yields climbed further while longer-maturity rates also swung higher. The inversion between two-year and 10-year yields -- a potential recession indicator -- is the deepest since 2000. Recession fears fuelled safe-haven flows into the US government bonds, which kept the upside in the Treasury yields short-lived. Although, the yields are back in the green, with the 10-year Treasury yields advancing towards the 3% key level.

The US Federal Reserve 

100 bps July Fed rate hike on the table

Despite the looming recession risks, markets are wagering a 100 bps rate hike in July, as Fed will likely fight the inflation monster head-on. The Bank of Canada’s (BOC) unexpected 100 bps lift-off also favors hawkish Fed tightening expectations. The Fed sentiment is leading the way so far this Thursday, weighing negatively on the XAUUSD pair.

US PPI – next of note

All eyes now remain on the US Producer Price Index (PPI) data due later in the NA session this Thursday, as America’s factory gate prices could also surprise on the upside following the CPI blowout. The PPI is seen easing to 10.7% YoY in June while the core figure will likely tick lower to 8.1% in the report month vs. 8.2% previous. The US weekly Jobless Claims and Fed official Waller’s speech will be also closely examined.

Gold Price technical outlook

The bullion confirmed a bear flag formation on the daily timeframe after closing below the rising trendline support of $1,733 on Tuesday.

This has paved the way for a test of the $1,700 mark should Wednesday’s low of $1.707 yield in on a sustained basis. The immediate support, however, is seen at $1,820 the figure.

The 14-day Relative Strength Index (RSI) is sitting just beneath the oversold territory, suggesting there is room for the additional downside.

On the flip side, a sustained break above the daily highs of $1,737 will kick in a fresh upswing towards the $1,750 psychological level.

Ahead of that, the bear flag support now turned resistance at $1,743 could challenge the road to recovery in the near term.

Elliott Wave view: Gold Price remains bearish near term