Gold Price Forecast: XAU/USD tested 100 DMA on US CPI, what’s next on Federal Reserve decision?

With the United States (US) Consumer Price Index (CPI) data out of the way, Gold price is gearing up for yet another eventful – US Federal Reserve (Fed) day. The US Treasury bond yields are pulling back multi-week highs, keeping US Dollar undermined while allowing a tepid bounce in the Gold price.

Federal Reserve set to pause but Dot Plot to steal the show

The Bureau of Labor Statistics (BLS) reported the United States Consumer Price Index on Tuesday, which increased just 0.1% for the month, bringing the annual inflation level down sharply to 4.0% from 4.9% in April. That 12-month increase was the smallest since March 2021. Meanwhile, the Core CPI rose 0.4% on the month and was still up 5.3% from a year ago, with both measures meeting the consensus forecasts.

Despite cooling off in the headline Consumer Price Index data, the Core figures continue to underscore its sticky nature, suggesting that the US Federal Reserve may skip a rate hike in June, keeping expectations of further tightening alive and kicking. This view was justified by the Fed fund rates futures, which showed about 60% odds of a July Fed rate hike, while the US inflation report cemented a pause this week. The probability for a June Fed rate hike pause jumped to 95% on the data release, compared with about 75% seen before the US event.

The Fed rate outlook, still favoring further tightening, underpinned a rally in the US Treasury bond yields across the curve, which erased the US Dollar gains garnered in an immediate reaction to the US CPI data release. Heightened odds of a June Fed rate pause fuelled a risk-on rally on global stocks, adding to the rebound in the US Treasury bond yields while limiting the US Dollar’s optimism. Against this backdrop, Gold price faded from the knee-jerk spike to $1,971 and reverted toward the weekly lows near the $1,940 region.

FXStreet’s senior Analyst, Yohay Elam, raised the key question, “Will this CPI report impact the Fed's dot plot? Some hawkish members may feel vindicated about their calls to continue raising rates, and they might push their projections for interest rates to rise. However, it is essential to note that there is still time until the July decision – and even more time until December. The dot plot refers to rates at the end of the year.”

Gold price technical analysis: Daily chart

As observed on the daily chart. Gold sellers jumped back into the game following a brief fight with bulls on the US CPI inflation data release, as the latter could not find acceptance above the bearish 21-Daily Moving Average (DMA), now at $1,960. It’s worth noting that the Gold price hasn’t closed the 21 DMA since May 15.  After meeting fresh supply, Gold price dropped nearly $30 to challenge the critical horizontal 100 DMA support at $1,942, which has guarded the downside so far.

Heading into the Fed policy announcements, the 14-day Relative Strength Index (RSI) is holding well below the midline, suggesting that the risks remain skewed to the downside.  

Should the Fed hint at an end to its tightening cycle after skipping a rate hike this Wednesday, and the same is reflected in the DoT Plot chart, it will be read as outrightly dovish. Gold price will likely extend its rebound, storming through the powerful 21 DMA at $1,960 to challenge the flattish 50 DMA at $1,9888. The next stop for Gold buyers will be the $2,000 psychological mark.

On the other hand, if Fed Chair Jerome Powell delivers a hawkish message during his press conference alongside a higher terminal rate seen in the Dot Plot chart, it could imply that more Fed tightening remains on the table later this year. In such a scenario, the Gold price will likely break the 100 DMA support at $1,942, below which the sell-off could extend toward the $1,930 round figure. Deeper declines are likely to target the March 17 low at $1,918.