Gold Price Forecast: XAU/USD could retest YTD low, near $1,615 amid fears of big rate hikes

Gold dived to a two-week low following the release of hotter US consumer inflation figures on Thursday, though staged a late recovery and finally settled with modest intraday losses. The US Bureau of Labor Statistics reported that the headline CPI rose 0.4% MoM (0.2% expected) and the yearly rate eased from 8.3% in August to 8.2%, slightly higher than the 8.1% estimated. More importantly, core inflation, which excludes food and energy prices, climbed 0.6% MoM and accelerated to a new cycle peak of 6.6% in the 12 months through September - registering the biggest gain since August 1982. The data all but reinforced bets for the fourth consecutive 75bps Fed rate hike in November. The expectations triggered a sharp spike in the US Treasury bond yields and weighed heavily on the non-yielding yellow metal.

In fact, the yield on the rate-sensitive two-year US government bond shot to a 15-year high and the benchmark 10-year US Treasury note touched the highest since October 2008, above the 4% threshold. This, in turn, provided a goodish lift to the US dollar, which was seen as another factor driving flows away from the dollar-denominated gold. The US bond yields, however, pared intraday gains led to a dramatic USD turnaround and assisted the XAU/USD to attract some buyers ahead of the $1,640 level. The recovery momentum, meanwhile, lacks bullish conviction. Asian shares tracked Wall Street higher on Friday and caps the upside for the safe-haven precious metal. The risk-on mood warrants caution before placing fresh bullish bets around the commodity and positioning for any meaningful appreciating move.

Market participants now look forward to the release of the US monthly Retail Sales figures, due later during the early North American session. The US economic docket also highlights the release of the Prelim Michigan Consumer Sentiment and Inflation Expectations Index. This, along with the US bond yields and speeches by influential FOMC members, will drive the USD demand and provide a fresh impetus to gold. Apart from this, Traders will take cues from the broader market risk sentiment to grab short-term opportunities around the XAU/USD on the last day of the week.

Technical Outlook

From a technical perspective, gold – barring the previous day’s post-US CPI slump – has been oscillating in a multi-day-old trading range, pointing to indecision among traders. That said, the overnight failure near the $1,682-$1,684 supply zone suggests that the path of least resistance for the XAU/USD is to the downside. The outlook is reinforced by the fact that oscillators on daily/4-hour charts are holding in the negative territory.

Hence, a slide back towards the overnight swing low, around the $1,642 region, remains a distinct possibility. Some follow-through selling will expose the YTD low, around the $1,615 region touched in September. This is followed by the $1,600 round figure, which if broken decisively will be seen as a fresh trigger for bearish traders.

On the flip side, the $1,682-$1,684 region might continue to act as an immediate strong resistance ahead of the $1,700 mark. A sustained strength beyond the latter is needed to negate the near-term negative bias and set the stage for additional gains. Gold might then accelerate the momentum back towards retesting the monthly peak, around the $1,728-$1,730 zone.