Gold Price Forecast: US CPI holds the key for a sustained break above $1,950

Gold price is holding higher ground near $1,940, its highest in three weeks, in the wake of the sustained weakness in the United States Dollar (USD)  and the US Treasury bond yields across the curve. Gold bulls await the US Consumer Price Index (CPI) data for the next push higher.

US inflation data crucial for Federal Reserve outlook

The dovish signals provided by the Federal Reserve policymakers at the start of the week combined with expectations of softening inflationary pressures, the US Dollar remains on the losing end so far this week. A shift to dovish Fed expectations has also weighed significantly on the US Treasury bond yields across the curve. Against this backdrop, the non-yielding Gold price continues to benefit, reaching the highest level seen since June 20.

The sell-off in the USD/JPY pair has also collaborated with the downside in the US Dollar, further accentuating the move higher in Gold price. The Japanese Yen is gaining ground on expectations that the Bank of Japan (BoJ) could tweak its yield curve control (YCC) policy at its July policy meeting.

Next of note for Gold price remains the key US CPI data due for release at 12:30 GMT on Wednesday. The annual headline CPI is seen rising 3.1% in June, compared with 4.0% booked previously. Core CPI inflation is also expected to soften to 5.0% in the reported month. On a monthly basis, US CPI is likely to increase 0.3% in June vs. 0.1% recorded in May. Core monthly CPI inflation is seen a tad lower at 0.3% vs. 0.4% prior.

“An increase of 0.3% in Core CPI MoM is fully priced in, and would only serve as a confirmation of what markets had expected since Monday. I expect the US Dollar to jump, Gold to retreat and stocks to stumble. A welcome slowdown of Core CPI to 0.2% MoM or weaker would be what markets are craving. The US Dollar would fall in such a scenario, while Gold and stocks would advance,” FXStreet’s Senior Analyst, Yoham Elam, explained.

Besides, a slew of Fed officials will speak, which will be key to repricing the US central bank’s next policy path, having significant implications for the US Dollar and Gold price.

Gold price technical analysis: Daily chart

The extension of a bullish wedge breakout remains on the cards, as Gold price recaptures the bearish 21-Daily Moving Average (DMA) at $1,928 on a daily closing basis.

The 14-day Relative Strength Index (RSI) is advancing above the midline, having pierced through it in early Asian trading. The momentum indicator suggests that the tide has turned in favor of Gold buyers.  

God bulls now target the downward-sloping 50 DMA at $1,958 on a sustained break above the bullish 100 DMA at $1,950. This could materialize if the US CPI data comes in softer-than-expected and supports the Fed policymakers’ dovish hints.

Alternatively, hot US inflation data could revive the US Dollar bulls at the expense of the Gold price. In such a case, Gold price could challenge the wedge resistance-turned-support at $1,904 should the 21-DMA at $1,928 give way. The $1,900 key level will be next on their radars.