Gold Price Forecast: XAU/USD retreats from post-US CPI swing high, back below $1,800 mark

Gold turns positive for the third successive day on Wednesday and jumps to a fresh six-week high, around the $1,808 region during the early North American session.

The US dollar weakens across the board, plunging to its lowest level since July 4 in reaction to softer US consumer inflation figures. This turns out to be a key factor pushing the dollar-denominated gold higher for the third successive day on Wednesday. The Bureau of Labour Statistics reported that the headline US CPI remained flat in July against expectations for a modest 0.2% rise and 1.3% in the previous month.

Adding to this, the yearly rate decelerated more than anticipated, to 8.5% in July from the 9.1% previous. Furthermore, the core CPI, which excludes volatile food and energy prices, held steady at 5.9% YoY, missing the forecast for a 6.1% increase. The data suggests that US inflation might have already peaked and pushed back expectations for an aggressive tightening by the Fed, which, in turn, weighs heavily on the USD.

In fact, the odds for a 75 bps Fed Rate hike move in September tumble to just 35 from 80% pre-CPI. This triggers a steep decline in the US Treasury bond yields, which further contributes to driving flows towards the non-yielding yellow metal. The strong move up, meanwhile, lifts spot prices beyond the $1,800 mark, though a massive rally in the US equity futures keeps a lid on any further gains for the safe-haven gold.

The XAU/USD now retreats below the $1,800 pivotal point, warranting some caution for bullish traders and positioning for any further appreciating move. That said, any meaningful pullback might still be seen as a buying opportunity and remain limited amid worries about a global economic downturn and US-China tensions over Taiwan.

Technical levels to watch