Gold Price Forecast: XAUUSD awaits US PCE inflation for a sustained move lower

• Gold Price remains exposed to downside risks, even as USD retreats.
• Fed expectations and end-of-quarter flows to remain in play.
• XAUUSD sellers keep their sights on $1,800, US PCE inflation in focus.  

Gold Price was knocked down to its lowest level since mid-June at $1,812, as Fed Chair Jerome Powell did manage to power bears on Wednesday. The US dollar gathered strength after the ECB Forum in Sintra kicked off, with Fed’s Powell, ECB President Christine Lagarde and BOE Governor Andrew Bailey discussing about policy outlook. Amongst all, Powell sounded confident in the economy and stuck to his stance of acting expeditiously to control inflation. Powell’s strong response fuelled the dollar rally while weighing negatively on global stocks, as investors feared that the aggressive Fed’s rate-hike track could trip the economy into a recession. US Treasury yields fell alongside stocks, which helped to cap the downside in the gold price. Earlier in the day, the bright metal recovered above $1,830, in the wake of the retreat in the yields and a broadly muted dollar. Investors resorted to profit-taking on gold shorts heading into the key super policy panel at the Sintra event.

XAUUSD is licking its wounds near $1,820 early Thursday, despite the pullback in the greenback amid mixed sentiment on global markets. Some optimism has seeped into the Chinese market after the country’s Manufacturing and Services PMIs returned to expansion, recovering firmly from the covid lockdown pain. The improved risk tone is helping the US Treasury yields stabilize at lower levels, which in turn, is acting as a drag on the metal’s price, at the moment. Despite the retreat in the dollar from weekly highs, the bullion’s outlook appears clouded by top central banks staying committed to fighting stubborn inflation, with aggressive tightening. It’s worth noting that the precious metal is set to drop for a third straight month, has lost about 6.2% this quarter.

Looking ahead, all eyes remain on the Fed’s preferred inflation gauge, the Core PCE inflation, which is seen easing to 4.7% YoY in May vs. 4.9% previous. Softer core figures could suggest that inflation is peaking, prompting investors to believe that Fed could go slow on its tightening cycle. Thus, gold price could attract fresh demand on in line with expectations or below forecasts reading, as it would down the dollar alongside the yields. The data holds the key, as it would shape up the Fed’s tightening expectations for the coming weeks. However, the end-of-quarter flows will come into play and could have a significant impact on gold price action.

Gold Price Chart: Daily

As observed on the daily chart, gold price is turning south once again, as the downside remains exposed after the pennant breakdown confirmed on Tuesday.  

Wednesday’s low of $1,1812 could offer immediate support to bulls, below which the June 15 low of $1,808 will be under threat, as a breach of the $1,800 mark remains on the table.

The 14-day Relative Strength Index (RSI) is inching slightly lower below the midline, suggesting that the downside remains more compelling and any rebound is likely to be short-lived.

Any upside attempt would need buyers to recapture the pennant support turned resistance, now at $1,824. Acceptance above the latter will fuel a decent bounce towards the $1,836 area. That price zone is the convergence of the short-tern critical 21-Daily Moving Average (DMA) and the pennant resistance.

Buying resurgence could see a retest of the mildly bullish 200 DMA at $1,845. The bearish 50 DMA at $1,850 will be the level to beat for XAU buyers.