Gold Price Forecast: XAU/USD rebounds above $1,790 after US inflation data

Update: Gold dropped toward the lower limit of its horizontal trading channel at $1,782 in the early American session on Tuesday but managed to stage a rebound with the greenback facing renewed bearish pressure on inflation data. The US Bureau of Labor Statistics announced on Tuesday that the Core Consumer Price Index (CPI) declined to 4% on a yearly basis in August from 4.3% in July. This print came in lower than the market expectation of 4.2% and caused the US Dollar Index to drop to a fresh daily low below 92.40. As of writing, the XAU/USD pair was posting small daily gains at $1,794.

Gold edged lower during the early part of the European session and dropped to fresh daily lows, around the $1,788 region in the last hour. Expectations for an imminent Fed taper announcement and a modest uptick in the US Treasury bond yields turned out to be a key factor that exerted some pressure on the non-yielding yellow metal. However, worries about the fast-spreading Delta variant of the coronavirus and a global economic slowdown might lend some support to the traditional safe-haven XAU/USD.

Apart from this, some follow-through US dollar pullback from two-week tops touched in the previous day could act as a tailwind for dollar-denominated commodities, including gold, and help limit losses. The USD bulls preferred to move on the sidelines and wait for fresh clues about the likely timing of the Fed's tapering plan. Hence, the market focus will remain glued to the latest US consumer inflation figures for August, due for release later during the early North American session.

The data will play a key role in influencing the USD price dynamics and provide some meaningful impetus to gold ahead of the FOMC policy meeting on September 20-21. In the meantime, the XAU/USD seems more likely to prolong its consolidative price action and remain confined in a familiar trading range held over the past one week or so.

Previous update: Gold (XAU/USD) picks up bids to $1,793, down 0.05% intraday, as the sluggish Asian session on Tuesday teases bears ahead of the European traders’ arrival.

The precious metal initially cheered risk-on mood before the cautious sentiment ahead of the US Consumer Price Index (CPI) data weighs on the gold prices inside a familiar trading range between $1,782 and $1,804, established since nearly a week.

Market sentiment sours as the eight-year high US inflation expectations signal reflation fears amid concerns. Today’s US CPI for August becomes the key for the Fed policymakers when they meet the next week. At the latest, Philadelphia Federal Reserve Bank President Patrick Harker pushed for the sooner tapering but refrained from confirming the next move.

It’s worth noting that Goldman Sachs’s lack of belief in US President Joe Biden’s six-pronged strategy to battle the virus joins the geopolitical fears over the relating to the hurricane Nicholas to also weigh on the sentiment. Additionally, the US-China rift over renaming the Taipei red office and Europe’s search to defend against the Taliban also underpin the US dollar’s safe-haven demand and weigh on gold prices.

Amid these plays, the US Dollar Index (DXY) remains unchanged, recovering intraday losses, by the press time whereas the US 10-year Treasury yields rise 0.7 basis points to 1.33%. Further, the Wall Street benchmarked closed mixed but the S&P 500 Futures print mild gains by at the latest.

Moving on, virus woes and geopolitics can entertain gold traders. However, major attention will be given to the US inflation figures as they help forecast the next weeks’ Fed move.

Read: US Inflation Preview: CPI critical for taper, three scenarios for the dollar

Technical analysis

Gold fades bounce off monthly support line as the short-term Simple Moving Averages (SMAs) cast doubts on the metal’s strength. That said, sluggish MACD signals and the Momentum line also challenges the buyers.

Hence, the metal’s further weakness towards retesting the ascending support line from August 19, near $1,784 becomes imminent. However, the recent lows surrounding $1,782 adds to the downside filters before confirming the bearish move towards August 09 swing high near $1,752.

Alternatively, recovery moves need a sustained run-up beyond the 50 and 100-SMA convergence near $1,804 to confirm the upside momentum targeting the monthly high near $1,834.

Overall, gold traders are bracing for an entry but seek assurance before the key US inflation data.

Gold: Four-hour chart

Trend: Further weakness expected