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Gold Price Forecast: XAU/USD sellers look to cash in ahead of US CPI inflation data

  • Gold price defends $2,600 before the critical US CPI event risk.   
  • The US Dollar retreats with Treasury yields as Trump trades-led rally stalls.
  • Gold price recovery must find a foothold above $2,645 as the daily RSI stays bearish.

Gold price has regained $2,600 early Wednesday, replicating the tepid recovery moves seen during Tuesday’s Asian trading. Gold price is snapping its three-day losing streak to its lowest level in two months, set on Tuesday at $2,590.

Gold price bounces but not out of the woods yet

Traders are cashing in profits on their Gold short and US Dollar (USD) long positions, fuelled by Republican Donald Trump's victory in the US presidential election earlier this month. Trump’s lower tax and foreign trade policies are seen as inflationary. This narrative has supported the USD alongside the US Treasury bond yields at the expense of the non-yielding Gold price.

Further, markets believe that US President-elect Trump’s hardline policies could temper the US Federal Reserve’s (Fed) easing cycle, which has also been positive for Greenback.

Markets currently price in about a 60% chance of another 25 basis points (bps) interest rate cut in for December, down from around 84% a month ago, according to the CME Group's FedWatch Tool.

However, all eyes turn to the highly anticipated US Consumer Price Index (CPI) data due later on Wednesday to gauge whether the Fed will continue its rate-cutting trajectory beyond December.

Economists expect the annual headline and core CPI to rise 2.6% and 3.3% in October, respectively. Meanwhile, CPI and core CPI inflation are likely to stay unchanged at 0.2% and 0.3% on a monthly basis in the reported period.

A downside surprise in the CPI and core CPI readings is set to reinforce dovish expectations surrounding the Fed’s path on rate cuts. Conversely, a hotter-than-expected inflation report could add to the market expectations that the Fed may reconsider future rate cuts.

Any reaction to the US CPI data could be short-lived, as markets will shift their focus to Fed Chair Jerome Powell’s speech on Thursday. Powell is due to speak on Global Perspectives at an event hosted by the Federal Reserve Bank of Dallas.

In the meantime, a fresh slew of speeches from Fed policymakers will also be closely scrutinized. Minneapolis Fed President Neel Kashkari, Dallas Fed President Lorie K. Logan, Kansas City President Jeffrey Schmid and their St. Louis counterpart Alberto Musalem are scheduled to speak later in American trading on Wednesday.

Gold price technical analysis: Daily chart

As observed on the daily chart, Gold price managed to close Tuesday at $2,600 following a brief dip beneath that level.

That has allowed buyers to attempt a comeback whilst the 14-day Relative Strength Index (RSI) rebounds toward the 50 level.

If the short-covering rally gathers steam, Gold price could aim for the 50-day Simple Moving Average (SMA) support-turned-resistance at $2,650.

Ahead of that, buyers must take out the previous day’s high of $2,627. Further up, the $2,670 static resistance will come into play.

In case of hotter-than-expected US inflation data, Gold price could turn south toward the 100-day SMA at $2,541, near that level the September 18 low aligns.

However, sellers could meet strong contention at around the $2,585 region.

Author

Dhwani Mehta

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.

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