Gold rebounds sharply after US CPI, but key resistance stands in the way

The build-up ahead of the US Consumer Price Index report was intense, as the market  viewed the release as the final major piece of data that could help determine whether the  Federal Reserve would raise interest rates on September 16. However, the report initially  failed to produce the fireworks expected across the broader market. 

Headline CPI rose by 3.4% year-on-year, in line with market expectations, while annual core  inflation also matched expectations at 2.4%. On a monthly basis, headline CPI increased by  0.4%, as expected, while core inflation came in slightly higher at 0.3%, compared with the  0.2% forecast. 

Initial market reactions showed the US Dollar strengthening across the board. EUR/USD fell  to 1.1668, GBP/USD dropped to 1.3478 and AUD/USD declined to 0.7148. Gold also tested  lows around $4,300, but these moves were short-lived as prices quickly recovered. 

EUR/USD, GBP/USD and AUD/USD have since returned to their pre-release levels, but Gold  has stolen the spotlight. XAU/USD recovered sharply from the post-release low around  $4,300 to reach $4,394 before retracing slightly to $4,382 at the time of writing. 

Gold’s recovery is consistent with the rebound seen across other US Dollar-denominated  instruments. However, the underlying macroeconomic story does not fully support the move  just yet, leaving room for caution before jumping on what appears to be a moving train. 

The CPI report was largely in line with expectations, although monthly core inflation came in  slightly higher than forecast. The probability of a Federal Reserve rate hike now stands at  approximately 85.6% at the time of writing. Elevated rate-hike expectations remain a  negative factor for non-yielding Gold, particularly if they are accompanied by a stronger US  Dollar and higher Treasury yields. 

Profit-taking and position rebalancing ahead of the end of the trading week may also be  contributing to Gold’s recovery. This means the current move may not necessarily represent  a lasting shift in market direction, especially with the Federal Reserve’s policy decision  approaching next week.

What does this mean for Gold?  

From a technical perspective, Gold was strongly rejected by the 50-day simple moving  average around $4,394. This moving average remains an important resistance level  alongside the horizontal resistance zone around $4,382–$4,395, where the metal is trading  at the time of writing. 

A failure to hold above this resistance zone would suggest that the initial rebound was  temporary as markets continued to digest the CPI report. In that scenario, sellers could  return, supported by expectations of higher US interest rates and a potentially stronger  Dollar. 

The bullish case would require more than a brief move above $4,390. Buyers would need to  secure a sustained break above the horizontal resistance, the 50-day SMA around $4,394  and the descending trendline near $4,405. A clean break above all three bearish structures  could signal a shift in momentum back in favor of buyers. 

Until that happens, the recovery should be treated with caution. With the trading week  coming to an end and the Federal Reserve’s decision approaching, the next sustained move  may become clearer when markets reopen for the new week.