Gold Price Forecast: XAU/USD awaits US CPI inflation amid deepening US-China trade war

Gold price consolidates the previous rebound after testing $3,100 early Thursday.
Deepening US-China trade war and renewed US Dollar downtick support Gold price.
Gold price broke the range to the upside as the daily RSI reclaimed the 50 level.
Gold buyers look forward to the US CPI data for the next trading impetus.

Dhwani Mehta FXStreet

Gold price is biding time near $3,100 in Asian trading on Thursday, gathering strength for the next push higher. The further upside in the Gold price depends on the upcoming US Consumer Price Index (CPI) data.

Gold price braces for US CPI amid US-China trade woes

Despite the latest pause in the Gold price turnaround, the US-China trade war escalation will likely keep the demand for safe havens such as Gold intact. The tit-for-tat game for the US and China is just getting bigger, with Beijing preparing to deepen the China-EU trade, indirectly taking aim at American companies, per the Wall Street Journal (WSJ).

This report came after US President Donald Trump announced on Wednesday a 90-day 'pause' on reciprocal tariffs of 10% for all countries except for China. Trump raised the tariff rate for China to 125%, effective immediately.

Earlier on Wednesday, Beijing hit back at Trump's 104% tariffs with its own additional tariffs of 84%, up from the previous 34%, on all American goods. Amidst tariff headlines still driving markets, investors continue to remain unnerved and prefer to hold on to the traditional store of value, Gold, heading toward the US CPI inflation showdown.

Increased expectations that the Trump-inflicted global trade war would cause higher inflation and tip the economy into recession keep the odds for aggressive interest rate cuts by the Federal Reserve (Fed) elevated. Dovish Fed bets remain supportive of the Gold price upside.

Therefore, it remains to be seen if the US March CPI report signals rising inflationary pressures, calling for the Fed’s prudence on future rate cuts. The non-interest-bearing Gold price will likely resume its corrective downside in such a scenario. However, any reaction to the US CPI data could be short-lived as tariff headlines will continue to play a pivotal role.

The US CPI is expected to rise 2.6% annually in March after increasing 2.8% in February. The core CPI inflation is seen a tad lower at 3% in the same period versus February’s 3.1%. On a monthly basis, the CPI and core CPI are forecast to rise 0.1% and 0.3%, respectively, in March.

Gold price technical analysis: Daily chart

The technical setup on the daily time frame favors Gold buyers, with the 14-day Relative Strength Index (RSI) holding firm above the midline, currently near 60.

On Wednesday, Gold price settled above the 21-day Simple Moving Average (SMA), then at $3,036, breaking out of this week’s range and opening the door for more upside.

Softer-than-expected US CPI readings would ramp up odds for a May Fed rate cut, bolstering the Gold price recovery to test the $3,150 psychological barrier.

The record high of $3,168 will be next on buyers’ radars, above which the $3,200 round level will be challenged.

If the US inflation data comes in hotter-than-expected, it would imply another pause by the Fed next month, smashing the yieldless Gold.

Gold price could find immediate respite at the 21-day SMA resistance-turned-support, now at $3,048.

Additional declines could threaten the $3,000 mark, below which a test of the 50-day SMA at $2,960 will be inevitable.

Economic Indicator

Consumer Price Index (YoY)

Inflationary or deflationary tendencies are measured by periodically summing the prices of a basket of representative goods and services and presenting the data as The Consumer Price Index (CPI). CPI data is compiled on a monthly basis and released by the US Department of Labor Statistics. The YoY reading compares the prices of goods in the reference month to the same month a year earlier.The CPI is a key indicator to measure inflation and changes in purchasing trends. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish.

Why it matters to traders?

The US Federal Reserve (Fed) has a dual mandate of maintaining price stability and maximum employment. According to such mandate, inflation should be at around 2% YoY and has become the weakest pillar of the central bank’s directive ever since the world suffered a pandemic, which extends to these days. Price pressures keep rising amid supply-chain issues and bottlenecks, with the Consumer Price Index (CPI) hanging at multi-decade highs. The Fed has already taken measures to tame inflation and is expected to maintain an aggressive stance in the foreseeable future.

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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