Gold Price Forecast: XAU/USD at a critical juncture ahead of key inflation data

• Gold price remains on the back foot as US Dollar keeps up its recovery mode.
• US Treasury bond yields trade listlessly as traders reprice Federal Reserve policy odds.
• Thursday's euro area inflation data and Friday’s United States PCE Price Index are in focus.
• Gold bears need a daily close below $1,953 to validate a pennant breakdown.

Gold price is looking to extend the previous weakness while defending the $1,950 level so far this Thursday. The extended rebound in the United States Dollar (USD) is boding ill for the Gold price, as investors turn their attention toward incoming United States economic data due in the second half of this week.

US Dollar shows signs of life, Gold price stays on the back foot

Gold price has been trading choppy in a familiar range so far this week, holding the corrective downside amid a broad-based US Dollar comeback, despite improving market mood. The US tech-heavy Nasdaq entered a bull market, having posted 20% gains so far this year, lifting the overall sentiment in the US last session.

Meanwhile, the odds of a 25 basis points (bps) US Federal Reserve rate hike for May seem to be gradually increasing, now at 49%, per the CMEGroup’s FedWatch Tool. Ebbing banking sector fears combined with encouraging United States Pending Home Sales Index unexpectedly rose 0.8% last month to the highest level since August. Meanwhile, on an annualized basis, the Pending Home Sales Index tumbled -21.1% in February vs. -29.4% expected. These factors underpinned the US Dollar recovery even though the US Treasury bond yields consolidated at higher levels.

Offering additional legs to the US Dollar’s revival was comments by the Republican Representative Kevin Hern, cited by Bloomberg early Thursday. Hern said, “Federal Reserve Chair Jerome Powell, asked in a private meeting with US lawmakers how much further the central bank will raise interest rates this year, pointed to policymakers’ latest forecasts showing they anticipate one more increase.

Despite the hawkish repricing by markets for the Federal Reserve May rate hike decision, the US Treasury bond yields remain unperturbed, awaiting a fresh batch of United States economic data releases due on Thursday and Friday.

Euro area inflation data eyed but United States PCE holds the key

Gold traders gear up for for the final Q4 Gross Domestic Product (GDP) data release from the United States later in North American trading this Thursday. The data is unlikely to have any significant market reaction. However, the US weekly Jobless Claims could offer some incentives to traders. Speeches from the Federal Reserve officials will be closely followed for fresh hints on the US central bank’s next policy move.

Gold price action could also remain at the mercy of the month-end, as well as, the fiscal year-end flows, which will heavily affect the US Dollar valuations. Friday’s Fed’s preferred inflation gauge, the Core Personal Consumption Expenditures - Price Index, will steal the limelight. The measure is expected to hold steady at 4.7% YoY in February, although any upside surprise could cement a 25 bps Fed rate hike next month. Gold price could extend its correction in the aftermath.

Ahead of that, all eyes will remain on inflation data from the euro area’s largest economy, Spain and Germany. The data is likely to stir volatility in an otherwise quiet trading day so far. An unexpected increase in the Spanish and German Harmonized Index of Consumer Prices (HICP) could revive bets for bigger European Central Bank (ECB) rate hikes going forward, weighing down on the non-interest-bearing Gold price.

Gold price technical analysis: Daily chart

As observed on the daily sticks, Gold price has charted a pennant formation after peaking out at $2,010 last week.

At the moment, Gold price is challenging the critical rising trendline support at $1,953, which if broken on a daily closing basis will confirm a down break from the pennant.

The next strong support for Gold bulls awaits at the $1,940 round level, below which the previous week’s low at $1,935 will be a tough nut to crack for bears.

Further south, Gold sellers will aim for a test of the bullish 21-Daily Moving Average (DMA) at $1,916.

The 14-day Relative Strength Index (RSI) is edging lower but trades above the midline, suggesting that Gold price could see some dip-buying.

If Gold price bounces off the abovementioned trendline support, then a fresh run-up toward the static resistance at $1,975 cannot be ruled out.

Buyers will then look out for the weekly high at $1,981 on their way to the $2,000 psychological level.