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Gold Price Forecast: XAU/USD licks US inflation-linked wounds near $1,700

Gold price (XAU/USD) remains pressured at around $1,700 as bears take a breather after the biggest daily slump in two weeks, thanks to US inflation. It should, however, be noted that a lack of major data/events seemed to restrict the immediate bullion moves during Wednesday’s Asian session.

US inflation data renewed fears of the Federal Reserve’s aggressive rate hike, as well as propelled the recession woes, on Tuesday. Also acting as the downside catalysts for the XAU/USD are the geopolitical concerns surrounding China and Russia.

US Consumer Price Index (CPI) for August rose past 8.1% market forecasts to 8.3% YoY, versus 8.8% prior regains. The monthly figures, however, increased to 0.1%, more than -0.1% expected and 0.0% previous readings. The core CPI, means CPI ex Food & Energy, also crossed 6.1% consensus and 5.9% prior to print 6.3% for the said month.

Following the US inflation data release, the bets on the Fed’s next move turned increasingly hawkish, with the 75 basis points (bps) of a hike appearing almost certainly next week. It’s worth noting that there is around 25% chance that the US Federal Reserve (Fed) will announce a full 1.0% increase in the benchmark Fed rate on September 21 meeting.

It should be noted that the yield inversion also widened after US inflation data and propelled the recession woes, which in turn drowned the XAU/USD prices due to the pair’s risk-barometer status. That said, the US 10-year Treasury yields rallied to 3.412% and those for 2-year bonds increased to 3.76% following the data, around 3.41% and 3.745% respectively at the latest. Furthermore, the US stocks had their biggest daily slump in almost two years after the US CPI release and that also pleased the metal bears.

Elsewhere, US President Joe Biden’s chip plans to increase hardships for China join the rush toward stronger ties with China to fuel the Sino-American woes. Further, expectations that Russia will hit hard after retreating from some parts of Ukraine also weighed on the market sentiment and the gold price.

Looking forward, a light calendar ahead of the US Producer Price Index (PPI) may keep XAU/USD on the dicey floor but the bears are likely to keep control before Thursday’s August month US Retail Sales and Friday’s preliminary reading of the Michigan Consumer Sentiment Index for September.

Technical analysis
A clear U-turn from the 21-DMA and a one-month-old descending resistance line, around $1,727-28 by the press time, joins downbeat MACD to direct gold bears towards an upward sloping support line from July 21, around $1,690.

Should the quote manage to break the stated support line, the odds of which are brighter, it can quickly refresh the yearly low under the current $1,680 level. In doing so, the 61.8% Fibonacci Expansion (FE) of the metal’s late April to early August moves, near $1,657, will be in focus.

Alternatively, an upside break of the $1,727-28 resistance confluence needs validation from the late August swing high around $1,765 to convince XAU/USD bulls.

Following that, a run-up towards the $1,800 threshold and the previous monthly peak near $1,807 can’t be ruled out.

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