Gold Price Forecast: XAU/USD could test 200 DMA on hot US Consumer Price Index data

Gold price is replicating the moves seen in the first half of Wednesday on the United States (US) Consumer Price Index (CPI) day. The United States Dollar (USD) buyers take a breather, awaiting the critical US inflation data for a fresh directional impetus.

All eyes on the United States Consumer Price Index data

Therefore, Gold price is making another recovery attempt from four-week troughs of $1,914 early Thursday. Markets trade with caution, reflective of the mixed tone in the Asian indices even though the US S&P 500 futures post small gains. Investors resort to adjusting their US Dollar positions ahead of the all-important CPI inflation data from the United States, which will have a significant influence on the US Federal Reserve (Fed) policy path.

US annual headline CPI is seen rising 3.3% in July against a 3% increase recorded in June. The Core CPI inflation is likely to steady at 4.8% YoY in the reported period. On a monthly basis, both the headline and Core inflation figures are expected to hold steady at 0.2%.

According to CME Group’s FedWatch Tool, money markets are pricing 86.5% odds for the Fed to pause its tightening cycle at the September meeting while predicting the next move as a cut, likely in the spring of next year.

An upside surprise to the headline and core CPI data could revive expectations for Fed rate hikes, triggering a fresh upswing in the US Dollar alongside the US Treasury bond yields. Hot US inflation data is likely to exacerbate the pain in the Gold price, opening floors for a test of the levels below the $1,900 mark.

On Wednesday, the Greenback jumped back on the bids after the early pullback. Risk sentiment soured after the US traders hit their desks and reacted negatively to China’s deflation data, lifting the safe-haven demand for the US Dollar at the expense of Gold price. China’s CPI fell 0.3% in July from a year ago, slightly better than the -0.4% expected but reported the first decline since February 2021. Meanwhile, China’s Producer Price Index (PPI) dropped for a 10th consecutive month.

Risk-aversion intensified, as US tech stocks tumbled after US President Joe Biden signed the highly anticipated bill that allows the US Treasury Department to prohibit or restrict certain US investments in Chinese technology companies, involved in semiconductors and microelectronics, quantum information technologies, and certain Artificial Intelligence (AI) systems.

Gold price technical analysis: Daily chart

Technically, Gold price remains exposed to downside risks, as the 14-day Relative Strength Index (RSI) continues to hold below the midline, despite the latest bounce.

A hot US inflation report will revive the selling interest around the Gold price, smashing it through the key support near the $1,910 region to challenge the critical 200-Daily Moving Average (DMA) at $1,900.

A sustained break below the latter will put the June 29 low of $1,883 to the test.

Only the downbeat US CPI data could rescue Gold buyers from monthly lows, with the recovery likely to face an initial hurdle at the $1,930 round figure, above which the downward-sloping 50-DMA at $1,944 could be challenged.

The next significant upside barrier is seen at the $1,950 psychological level.