Gold Price Edges Higher with Caution as Focus Shifts to US Consumer Inflation Figures
During the Asian session on Tuesday, the price of gold saw a modest increase, but lacked strong bullish conviction, remaining below a significant resistance level near $1,935 that was tested last week.
During the Asian session on Tuesday, the price of GOLD saw a modest increase, but lacked strong bullish conviction, remaining below a significant resistance level near $1,935 that was tested last week. Currently trading slightly above $1,925, the XAU/USD pair is up less than 0.10% for the day as traders eagerly await the release of the latest consumer inflation figures from the United States (USD) on Wednesday before making new trading decisions.
Weaker US Dollar Supports Gold Price
The upcoming US Consumer Price Index (CPI) holds great influence over the Federal Reserve’s (Fed) near-term policy outlook, which in turn affects the demand for the US Dollar (USD) and provides impetus for the price of gold. Meanwhile, speculation that the US central bank is nearing the end of its policy tightening cycle has dragged the USD lower for the fourth consecutive day, reaching its lowest level since May 11. This serves as a tailwind for gold, which is denominated in US Dollars. The latest US monthly employment report, released on Friday, showed the addition of the fewest jobs in 2-1/2 years, signaling a cooling labor market. Additionally, the New York Fed’s monthly survey revealed a drop in one-year consumer inflation expectations to 3.8% in June from 4.1% in the previous month, the lowest level since April 2021. This may lead the Fed to adopt a more dovish stance, further weighing on the Greenback.
Bets for a 25 bps Fed Rate Hike in July Limit Gains for XAU/USD
Concerns about a global economic downturn contribute to the support for the safe-haven XAU/USD, despite the lack of strong bullish conviction in the current uptick. Several hawkish comments by Fed officials overnight reinforce market expectations for a 25 basis points (bps) rate hike at the upcoming Federal Open Market Committee (FOMC) policy meeting scheduled for July 25-26. This expectation acts as a headwind for GOLD , which does not yield interest. San Francisco Fed President Mary Daly emphasized the risks of doing too little, while Cleveland Fed President Loretta Mester reiterated the need for further tightening of monetary policy to combat inflation. As a result, it is prudent to wait for sustained buying momentum before considering a significant upward move in the price of gold.
Technical Outlook for Gold Price
From a technical standpoint, further upward movement may encounter strong resistance in the $1,933-$1,935 range, followed by the 100-day Simple Moving Average (SMA) around $1,948-$1,949. A sustained breakthrough above the latter could trigger short-covering and potentially lift the gold price to the $1,962-$1,964 area, heading towards the $1,970-$1,972 resistance zone. Bullish momentum could extend further, potentially pushing the price above the psychological $2,000 level and testing the $2,010-$2,012 resistance zone.
On the downside, immediate support is seen around the $1,912-$1,910 area, which should provide a buffer against further decline before reaching the $1,900 mark. A breach below this level could expose the multi-month low around $1,893-$1,892 reached in June. If selling pressure continues, it may trigger a bearish trend with the next critical support at the 200-day Simple Moving Average (SMA) around $1,866-$1,865. Breaking decisively below this level could pave the way for an extension of the recent sharp retracement from the all-time high around $2,080 reached in May.
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