Gold Price Forecast: XAU/USD appears vulnerable below 21-DMA ahead of US CPI data, Fed Decision

Gold price looks to extend Friday’s pullback from five-day highs of $1,973 on Monday. Despite the retreat, Gold price maintains its last week’s range as investors turn cautious ahead of a big week, with the United States (US) Consumer Price Index (CPI) data and the US Federal Reserve policy announcements eagerly awaited.

All eyes on the United States inflation data and Federal Reserve

Following a 1% rally on Thursday, Gold price built on the advance early Friday before retreating from five-day highs, as the United States Dollar (USD) was rescued by the end-of-the-week flows and positions adjustments ahead of US top-tier Consumer Price Index inflation data and the Federal Reserve policy announcements. Even though the Greenback bounced back on Friday, the US Dollar ended the week in the red for the second time in a row, offering some comfort to Gold price.

The US Dollar tracked the minor rebound in US Treasury bond yields across the curve, although United States government bond buyers remained in the game amid renewed economic concerns and heightened expectations that the Federal Reserve will pause its interest-rate hiking cycle. Markets have baked in a 76% probability that the Fed will keep its Fed funds rate in the 5.00%-5.25% range when its two-day meeting ends on Wednesday. The recent series of downbeat economic data from the United States, including the ISM Services PMI and Jobless Claims, revived hopes of a halt in rates.

Gold price remains vulnerable early Monday as the US Dollar consolidates Friday’s upswing amid a cautiously optimistic market mood and as investors gear up for the key event risks of this week. The US CPI data will be released on Tuesday, with the market expecting headline annual CPI to rise 4.1% in May, lower than the 4.9% increase recorded in April. On the other hand, the Core CPI figure, which excludes volatile food and energy prices, is expected to advance 5.3%, at a slightly slower pace than April’s 5.5% growth. The monthly Consumer Price Index is forecast to rise by 0.2% in May, having inched 0.4% higher in the fourth month of the year. However, the Core CPI is expected to increase 0.4%, the same pace as the previous month.  

The data comes just a day ahead of the Fed decision, and therefore, could have a notable bearing on the Fed’s rates outlook. Former President of Boston Federal Reserve Bank, Eric Rosengren, tweeted early Monday that he expects a hawkish pause from the Fed on Wednesday, suggesting that the US central bank will keep doors open for more tightening later this year.

Gold price also remains on the back foot undermined by Reuters news that physical gold demand slowed in China and India last week, forcing dealers to offer discounts, with volatile prices in India prompting buyers to delay purchases.

Gold price technical analysis: Daily chart

Having faced rejection at the bearish 21-Daily Moving Averages (DMA) at $1,965, Gold price is heading south toward the $1,950 demand area.

Gold price, however, keeps its range between the 21-DMA and the horizontal 100-DMA at $1,941. Therefore, the next critical support for Gold price is seen at the 100-DMA.

With the 14-day Relative Strength Index (RSI) lying below the midline, the downside bias remains in place for Gold price in the near term.

Conversely, acceptance above the 21-DMA barrier is needed on a daily closing basis to negate the bearish potential.

A firm break above the 21-DMA will trigger a fresh upswing toward Friday’s high of $1,973, above which the June 2 high at $1,983 will be challenged.

Further up, Gold buyers will gear up to recapture the flattish 50-DMA resistance at $1,990.