Gold languishes near March low, below $4,200 as traders await US CPI report

Gold (XAU/USD) maintains its heavily offered tone through the first half of the European session and currently trades near its lowest level since March 23, around the $4,180-$4,175 region.

Renewed hostilities between the US and Iran fuel inflationary concerns and bolster bets for more hawkish central banks, driving flows away from the non-yielding yellow metal. The decline could also be attributed to technical selling following the recent breakdown below the very important 200-day Simple Moving Average (SMA) and seems unaffected by a softer US Dollar (USD), which tends to benefit the commodity.

The US launched self-defence strikes against Iran on Tuesday in retaliation for the downing of a US Apache helicopter in the Strait of Hormuz. In response, Iran’s Islamic Revolutionary Guard Corps (IRGC) said it has targeted an airbase in Jordan hosting US forces, as well as Kuwait and Bahrain, and warned of “a more severe response” if the US aggression continues. Furthermore, Iran's Foreign Minister Abbas Araghchi said that the country's armed forces would not leave any attack or threat unanswered and warned the US to leave the region or face consequences. This keeps geopolitical risk premiums in play and helps Crude Oil prices to hold above a two-month low, touched the previous day.

According to the CME Group's FedWatch Tool, traders are assigning nearly a 75% chance that the US Federal Reserve (Fed) will hike interest rates by the end of this year amid concerns about sticky inflation due to elevated energy prices. However, the US Dollar (USD) bulls seem hesitant and opt to wait for the release of the latest US consumer inflation figures before placing fresh bets. The crucial US Consumer Price Index (CPI) report will play a key role in influencing market expectations about the Fed's policy path, which, in turn, should provide some meaningful impetus to the USD. In the meantime, the fundamental backdrop might continue to exert pressure on the Gold price.

XAU/USD daily chart

Gold might struggle to register any recovery as fresh bearish breakdown comes into play

From a technical perspective, the latest leg down confirms a fresh breakdown below a downward-sloping channel extending from the April swing high. Moreover, the precious metal remains entrenched below the 200-day Simple Moving Average (SMA), validating the near-term negative outlook and backing the case for further losses.

Moreover, the daily Relative Strength Index (14) near 28 signals oversold conditions, and the Moving Average Convergence Divergence (MACD) indicator deep in negative territory reinforces prevailing bearish momentum. This leaves the Gold price vulnerable to further declines, towards retesting the March swing low, around the $4,100 mark.

On the topside, initial resistance is seen at the former channel floor around $4,238, followed by the 200-day SMA near $4,444. A recovery back above the latter would begin to ease the broader downside pressure implied by the dominant descending channel and lift the Gold price further to the channel top near $4,546 and the prior swing reference around $4,634.