Gold Price Forecast: XAU/USD stays defensive near $1,965 hurdle ahead of US inflation

Gold Price Forecast: XAU/USD stays defensive near $1,965 hurdle ahead of US inflation

Time Stamp: June 12, 2023 6:50 PM
Source Node: 2719207

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  • Gold Price pares losses after reversing from a convergence of 21-EMA, 50-EMA.
  • Pre-Fed positioning, firmer United States Treasury bond yields allow US Dollar to grind higher, weigh on XAU/USD.
  • Dicey markets, US-China tussles also exert downside pressure on the Gold Price.
  • US Core Inflation will be crucial to determine Fed moves even as markets seem prepared for hawkish FOMC halt.

Gold Price (XAU/USD) prods a two-day downtrend with the latest corrective bounce off $1,950, grinding higher as it approaches the key $1,967 resistance confluence during early Tuesday in Asia, close to $1,958 at the latest. That said, the XAU/USD began the week on a back foot amid the market’s indecision ahead of the top-tier central bank events and doubts about the major consensus favoring no rate hike from the Federal Reserve (Fed). However, the US Dollar’s failure to stay strong joins the mixed headlines about the central banks and Treasuries, as well as geopolitics, to allow the precious metal to consolidate recent losses ahead of the key United States Consumer Price Index (CPI) data for May.

Gold Price prods bears amid Federal Reserve concerns

Gold Price dropped in the last two consecutive days while reversing from a crucial Exponential Moving Average (EMA) resistance confluence (see technical analysis). Even so, the metal buyers remain hopeful and print a corrective bounce off the $1,950 mark on Monday as the United States Federal Reserve (Fed) appears to have many reasons to not go forward with its rate hike trajectory.

That said, a study from the San Francisco Fed about the correlation between wage growth and inflation could be cited as the first reason for the US central bank to remain less hawkish. The survey concluded that wage growth has a very small impact on inflation, which in turn raises doubts about the central bankers’ emphasis on wage cost numbers as a source of information to gauge inflation pressure.

Additionally, challenges for the US central bank and grim concerns about the same also prod the US Dollar and allow the Gold Price to consolidate the previous losses. Former Fed vice chair Richard Clarida came out with comments that it may be more difficult to get inflation near 2% than in the past 15 years. Further, “Expect a hawkish skip this week,” Former President of Bosteon Federal Reserve Bank, Eric Rosengren, tweeted early Monday.

With this in mind, the market players place heavy bets on the Federal Reserve’s (Fed) inaction on Wednesday’s Federal Open Market Committee (FOMC) while also expecting a 0.25% rate hike in July.

Even so, firmer yields and fears of economic slowdown, as well as a likely pressure on the banking system due to the bond market moves backed by the debt-ceiling deal, seem to restrict the Gold Price rebound ahead of the key US Consumer Price Index (CPI) data.

As per the latest updates, the US Treasury Department, a $240 billion deficit could be found, which in turn pushed the officials to issue more bonds. The same drives down the prices of traditional haven and propel the yields. It’s worth noting that the concerns about the Fed’s no rate hike and previously downbeat US data exert downside pressure on the Treasury bond coupons and the US Dollar.

Additional challenges for XAU/USD

Apart from the Federal Reserve (Fed) concerns and fears of inflation, challenges emanating from the US-China tension and growing fears of easing economic recovery in the top-tier nations also challenge the Gold Price upside.

That said, a trade dispute is developing after the US expands its ban on imports from Xinjiang. China vows to protect China firms against any US sanctions. On the other hand, global institutions like the International Monetary Fund (IMF) and the Organisation for Economic Co-operation and Development (OECD) earlier flagged concerns about the global economic challenges emanating from higher interest rates. The same could join the latest easy data from top-tier economies to weigh on the Gold Price.

Moving on, the US Consumer Price Index (CPI) figures for May will be in the spotlight as the Fed decision looms on Wednesday. That said, the market forecasts of witnessing no change in the Core CPI MoM figure of 0.4% gain major attention as softer figures could push back the July rate hike concerns and may not allow the Fed to sound hawkish, which in turn can drown the US Dollar and propel the Gold Price.

Also read: US Inflation Preview: Why the US Dollar is more likely to fall than rise, three scenarios

Gold Price technical analysis

Gold Price stays depressed after reversing from a convergence of the 21-Exponential Moving Average (EMA) and the 50-EMA, following a two-week winning streak.

While the clear U-turn from the key EMA confluence keeps the XAU/USD sellers hopeful, the below 50.0 levels of the Relative Strength Index (RSI) line, placed at 14, suggests lower room for the commodity towards the south. The same highlights the 100-EMA support of around $1,937 as the short-term important level for the Gold bears to conquer to keep the reins.

Should the quote XAU/USD bears manage to smash the $1,937 support, which is less likely, the odds of witnessing a gradual fall towards the $1,890-85 support zone comprising multiple levels marked since early February and the 200-EMA can’t be ruled out.

Meanwhile, an upside break of the previously mentioned EMA confluence, around $1,965-70 by the press time, needs to cross a one-month-old resistance line, close to $1,982 at the latest, to restrict the short-term upside of the Gold Price.

Following that, a run-up toward the $2,000 psychological magnet and then to the two-month-long resistance near $2,050 can’t be ruled out.

Overall, the Gold Price remains on the back foot but the downside room appears limited.

Gold Price: Daily chart

Trend: Further downside expected

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