Gold Price Forecast: XAU/USD needs a soft US CPI inflation report to take on the $2,500 level

Gold price defends $2,450, as buyers stay hopeful ahead of key US CPI data.
The US Dollar and Treasury bond yields lick soft PPI data-inflicted wounds.
Gold price teases upside break from a symmetrical triangle amid a daily bullish RSI.

Dhwani Mehta FXStreet

Gold price is defending the $2,450 psychological level, looking to the one-week high of $2,477 on the US Consumer Price Index (CPI) inflation day.

All eyes remain on the key US CPI inflation data

Gold buyers remain expectant of a softer US CPI report, following a bigger-than-expected cool-off in the Producer Price Index (PPI) inflation data published a day ago.

The US will hog attention later on Tuesday while the US Consumer Price Index (CPI) inflation release will stand out on Wednesday. The US Labor Department’s Bureau of Labor Statistics reported Tuesday that the headline PPI increased 2.2%, a sharp drop from the 2.7% reading in June, coming in below the expected 2.3% rise.

The data triggered a risk rally on Wall Street, as it reinforced dovish US Federal Reserve (Fed) expectations, smashing the US Dollar across the board in tandem with the US Treasury bond yields. Increased dovish Fed bets cushioned the corrective downside in the non-interest-bearing Gold price, as markets resorted to profit-taking after the bright metal reverted toward all-time highs in the lead-up to the US CPI showdown.

Markets are currently pricing in a 54% chance of a 50 basis points (bps) interest-rate cut by the Fed in September, according to the CME Group’s FedWatch Tool.

Meanwhile, the US annual CPI is seen rising 2.9% in July, compared to the 3% figure recorded in June. The annual core CPI inflation is set to ease to 3.2% in the same period vs. June’s 3.3%. Over the month, the CPI is expected to rebound 0.2% in July while the core CPI will likely inch a tad higher to 0.2%.

A softer-than-expected headline annual CPI print could confirm bets of aggressive and big Fed rate cuts, providing extra legs to the US Dollar downtrend. Gold price, in turn, could clinch fresh record highs.

Besides, Gold price will continue to find support from the rife Middle East geopolitical tensions, with markets bracing for an imminent Iranian attack on Israel. Additionally, speeches from Fed policymakers will also help influence the Gold price action.

Gold price technical analysis: Daily chart

As observed on the daily chart, Gold price is challenging the upper boundary of a symmetrical triangle formation, now at $2,471.

Gold buyers look to the US CPI data to secure a daily candlestick closing above that level, which could then trigger a fresh advance to the $2,500 mark.

However, Gold price needs to take out the all-time high of $2,484, at first.

The key leading indicator, the 14-day Relative Strength Index (RSI) points lower but stays above the 50 level, suggesting that Gold price will continue to see dip demand.

On the other hand, an upside surprise in the US CPI data could revive the selling interest, dragging Gold price back toward the 21-day Simple Moving Average (SMA) support at $2,420 holds.

Ahead of that, the August 9 high of $2,437 could lend some support to Gold buyers.

Should the selling momentum intensify, with the 21-day SMA giving way, the next relevant support is seen at $2,380, where the lower boundary of the triangle and the 50-day SMA converge.

Economic Indicator

Consumer Price Index (YoY)

Inflationary or deflationary tendencies are measured by periodically summing the prices of a basket of representative goods and services and presenting the data as The Consumer Price Index (CPI). CPI data is compiled on a monthly basis and released by the US Department of Labor Statistics. The YoY reading compares the prices of goods in the reference month to the same month a year earlier.The CPI is a key indicator to measure inflation and changes in purchasing trends. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish.

Why it matters to traders?

The US Federal Reserve has a dual mandate of maintaining price stability and maximum employment. According to such mandate, inflation should be at around 2% YoY and has become the weakest pillar of the central bank’s directive ever since the world suffered a pandemic, which extends to these days. Price pressures keep rising amid supply-chain issues and bottlenecks, with the Consumer Price Index (CPI) hanging at multi-decade highs. The Fed has already taken measures to tame inflation and is expected to maintain an aggressive stance in the foreseeable future.

Author

Dhwani Mehta

FXStreet

Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.

AUD/USD holds above 0.6950 as bullish USD caps gains

AUD/USD edges lower during the Asian session on Tuesday, stalling a two-day recovery move from a two-month low, touched last week. An extended rout in the fixed income market keeps US bond yields elevated near multi-year highs. This, along with geopolitical uncertainties, helps the US Dollar retain its bullish tone despite receding October Fed hike bets. However, expectations for another RBA rate hike this month could act as a tailwind for the Aussie.

USD/JPY remains confined in a range; 158.00 holds the key

USD/JPY extends its consolidative move during the Asian session on Tuesday, trading below 158.00 amid diverging forces. Hawkish BoJ expectations support the Japanese Yen amid looming intervention risks. Meanwhile, geopolitical uncertainty and elevated US bond yields keep the US Dollar near its YTD high despite receding October Fed hike bets. This, in turn, holds back traders from placing aggressive directional bets.

$4,100: For how long can Gold defend that level?

Gold resumes the recent downtrend, approaching $4,100 early Tuesday. The US Dollar consolidates near 17-month highs amid high Treasury yields and a rebound in oil prices. From a short-term technical view, Gold’s path of least resistance appears to be down.

Ethereum: BitMine scoops extra ETH tokens following Q3 outperformance

Ethereum (ETH) treasury firm BitMine Immersion continued its buying streak of the top altcoin last week. The firm acquired 15,112 ETH, lifting its holdings to 6.016 million ETH, representing 4.9% of ETH's circulating supply and worth $16.16 billion at the time of writing. That brings the company roughly 98.5% closer to acquiring 5% of ETH's supply, a goal it tags "Alchemy of 5%."

The scarcity trade is gaining momentum – The biggest commodity moves may still be ahead

Something extraordinary is happening across global Commodity markets. Oil is above $100. Diesel has reached record prices. Copper has broken records. Global food prices are rising again. China is restricting fuel exports. Governments are releasing emergency reserves.

Eurozone inflation just hit 3.8%, its highest in three years. This chart shows why the ECB can’t simply hike its way out

The ECB would normally have a relatively straightforward answer to inflation running almost twice its target: raise interest rates. But these are not normal circumstances. This time, the bond market is already doing part of the tightening for it, leaving the ECB facing an increasingly difficult dilemma.