• Gold price looks vulnerable despite weaker yields and the US dollar.
  • Upside surprise to the monthly US core CPI cannot be ruled out.
  • XAU/USD risks testing the $1,702 support on the critical US inflation data.

Gold price is posting small losses this Tuesday, as bulls take a breather after two straight days of gains. The minor recovery attempt in the US dollar outweighs the weakness in the Treasury yields, doing little to cheer gold buyers. They also turn cautious and refrain from placing directional bets on the metal in the lead-up to the critical US inflation data. The US Consumer Price Index (CPI) release will shape the markets and the Fed rate hike expectations in the coming months, significantly impacting the dollar and gold valuations.

The annualized headline US CPI is likely to soften to 8.1% in August vs. 8.5% In July while on a monthly basis, the figure is seen dropping 0.1% vs. 0%. The core figures are seen steady at 0.3% MoM but the YoY core CPI is expected to rise to 6.0% vs. 5.9% previous. The drop in headline inflation YoY is widely anticipated due to the slump in gasoline prices. However, the monthly core CPI is likely to hog the limelight and risks an upside surprise, which could trigger a sharp US dollar rally, implying an extension of the latest leg down in the bullion. Gold bulls could regain the upside traction on an unexpected easing in the core CPI MoM reading, as it could hint at a probable slow down in the Fed’s tightening path from November. The Fed is widely expected to stay on course with a 75 bps rate hike this month unless the inflation data deviates sharply from the expectations.

Also read: US CPI Preview: Dollar set to climb on low core expectations, three scenarios

XAU/USD started the week on a firm footing on Monday and hit the highest level in nine days at $1,735.17, surpassing the key $1,730-$1,734 supply zone. The hawkish ECB signals combined with Ukraine's progress on Russia’s aggression accelerated the downside correction in the US dollar index from twenty-year peaks. The risk rally on global markets also collaborated with the dollar decline, boding well for the USD-priced yellow metal. Although the recovery lost legs in American trading, the US benchmark 10-year Treasury yields jumped to fresh multi-month highs on weak Treasury auction results.

Gold price technical outlook: Daily chart

The extension of the upside in Gold price, following the confirmation of a falling channel breakout on Friday, faltered at the bearish 21-Daily Moving Average (DMA) at $1,735 a day before.

At the time of writing, the bright metal is holding lower ground near $1,720, with the 14-day Relative Strength Index (RSI) turning south just beneath the midline.

The metal, therefore, appears vulnerable to further downside risks, as the previous day’s low of $1,712 remains in sight.

Further down, the channel resistance-turned-support at $1,702 could challenge the bullish commitments.

On the flip side, gold bulls need to recapture the 21-DMA barrier on a daily closing basis to unleash the additional recovery.

The downward-sloping 50 DMA at $1,741 will be the next stop for buyers on a sustained upside. The last line of defense for XAU sellers is at the $1,750 psychological level.

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