Gold Price Forecast: XAU/USD could retake $2,050 and beyond on soft United States inflation data

Gold price entered a consolidation phase near $2,030 early Wednesday, having witnessed two consecutive days of gains. The United States Dollar (USD) is pulling back from multi-day highs, snapping its recovery momentum ahead of the all-important Consumer Price Index (CPI) data from the United States due later in American trading this Wednesday.

United States Consumer Price Index holds the key to Gold price

Wednesday’s critical US Consumer Price Index (CPI) data is likely to set the tone for markets in the coming week, as it would shed fresh light on the US Federal Reserve (Fed) interest rates outlook, especially after the Fed said at its April meeting that it would remain data-dependent while determining the extent of further rate hikes. Last Friday’s United States Nonfarm Payrolls data helped the US Dollar stage a tepid recovery. But the brief reprieve for the US Dollar bulls will likely wane should the US CPI data come in softer-than-expected.

On an annualized basis, the US Consumer Price Index data is seen rising 5.0% in April. The Core CPI, which excludes volatile food and energy prices, is expected to increase by 5.5%, compared with a 5.6% growth reported in March. Over the month, the headline Consumer Price Index is seen accelerating by 0.4% in April vs. a 0.1% rise registered in March. However, the Core CPI will likely have risen 0.4% in the reported period.  

Any miss on the headline or Core CPI figures will ramp up Federal Reserve rate cut expectations as early as July, triggering a fresh upswing in the Gold price at the expense of the US Dollar and the US Treasury bond yields. Only a bigger-than-expected increase in the CPI print could push back on market expectations of a Fed rate cut in the second half of this year, allowing the Greenback to resume its recovery mode. In such a case, Gold price could see a fresh corrective move lower toward the $2,000 area.

United States debt ceiling woes could underpin Gold price

Mounting default fears in the United States seem to be weighing on the US Dollar at the moment after the much-anticipated between US President Joe Biden, Republican House Speaker Kevin McCarthy and other congressional leaders at the White House late Tuesday failed to break a deadlock over raising the $31.4 trillion US debt limit.

US President Joe Biden called the meeting “productive” and reported that House Speaker Kevin McCarthy said during the meeting that the US would not default on its debt, Reuters reported.

On Tuesday, Bipartisan Policy Center said the “US debt limit default will be between early June and early August, depending on revenue strength.”

In light of this, Gold price could continue to draw support from the US default risks, which may offset any negative impact of the US inflation developments.

Gold price technical analysis: Daily chart

 With the bullish wedge formation in play, the upside bias in Gold price remains well in place in the short term, especially with the 14-day Relative Strength Index (RSI) holding comfortably above the midline.

A softer-than-expected US Consumer Price Index print could provide extra legs to this week’s bullish momentum in the Gold price, with buyers looking to challenge the $2,050 level once again.

Acceptance above the latter will open doors toward the record highs of $2,080.

Conversely, a surprisingly stronger US CPI print could re-fuel the correction in Gold price, putting the mildly bullish 21-Daily Moving Average (DMA), now at $2,008, at risk.

The next strong cushion aligns at the $2,000 psychological level, below which the static support at $1,977 could be tested.