Gold Price Forecast: XAU/USD could retest yearly top at $2,032 on soft United States inflation data

Gold price is extending the previous rebound above the $2,010 mark early Wednesday, as markets remain in a cautiously optimistic mood ahead of the all-important United States Consumer Price Index data and the Minutes of the US Federal Reserve (Fed) March meeting.

United States Consumer Price Index in the Spotlight

Full markets returned on Tuesday, following the Easter long holiday. However, that failed to cheer the United States Dollar (USD) bulls, as the Greenback snapped the previous week’s recovery mode and turned south, tracking the pullback in the US Treasury bond yields. Investors are resorting to position adjustment, gearing up for the high-impact economic events from the United States due midweek.

On Good Friday, the US Dollar rallied hard after a strong US labor market report boosted the odds of 25 basis points May rate hike by the Federal Reserve to 71%. With expectations of soft inflation data on Wednesday, markets are now pricing a 67% probability of a quarter percentage point rate increase next month. The revival of the dovish Federal Reserve interest rates bets weighs heavily on the US Dollar, boding well for the non-interest-bearing and the USD-denominated Gold price.

Economists are expected the United States Consumer Price Index to drop sharply to 5.2% YoY in March vs. 6.0% seen previously, while the monthly headline figure is seen a tad lower at 0.3% in the reported month. Meanwhile, the annualized Core Consumer Price Index will likely accelerate from 5.5% to 5.6% in March. The Core CPI MoM is foreseen at 0.4% in March against a 0.5% growth booked in February.

Softer-than-expected headline numbers combined with a downside surprise in the annualized Core CPI clip could reinforce expectations of a Federal Reserve pause as early as next month while bringing Fed rate cuts bets for this year back on the table. The dovish Fed outlook could trigger a fresh downswing in the US Treasury bond yields across the curve, eventually smashing the US Dollar bulls. As a result, Gold price could extend the renewed upside to test the yearly top at $2,032.

In case of a hotter-than-expected US inflation report, a 25 bps May Fed rate hike will be cemented while leaving doors open for one more 25 bps increase in June. Hawkish Fed bets could trigger a fresh risk-aversion wave, reviving the US Dollar’s appeal as a safe haven at the expense of the Gold price.

Fears over a potential US recession could resurface on hot US inflation data, especially after the International Monetary Fund (IMF) revised the global real Gross Domestic Product growth for 2023 to 2.8% from 2.9% in January's report.

The Fed Minutes will also be closely scrutinized for the future rate path debated by the board members in the March policy meeting. Any surprise in the Minutes could also stir volatility around the Gold price.

Gold price technical analysis: Daily chart

Having bounced off the powerful support of the pennant resistance near $1,987 for the second day in a row, Gold price surged past the $2,000 barrier to settle Tuesday above the critical hurdle at $2,007.

Early Wednesday, Gold bulls extend their control while challenging the $2,020 round level. A sustained move above the latter will put the focus back on the $2,032-year’s high.

Weak US CPI data could help Gold buyers achieve that target, with eyes set on the $2,043 pennant target.

The 14-day Relative Strength Index (RSI) displays an upward momentum above the midline, suggesting that there is enough room for the upside.

Alternatively, hot US inflation data is needed to reinstate Gold sellers, with the immediate support seen at the intersection of the pennant resistance and support at around $1,982.

The correction could resume toward the April 4 low at $1,977 after that, where the 21-Daily Moving Average (DMA) aligns.

Further south, the $1,970 and $1,960 static supports could rescue Gold optimists.