Gold Price Forecast: XAU/USD could correct before targeting key 200 DMA support

• Gold price pauses a four-day losing streak but holds near monthly lows just above $1,900.
• Focus shifts to US sentiment data after the soft inflation report and hawkish Fedspeak.
• Downside risks remain intact for Gold price but a pullback cannot be ruled out,

Gold price is consolidating weekly losses, sitting at the lowest level in a month near $1,910 early Friday. The. The United States Dollar (USD) is clinging to solid overnight recovery gains heading into another top-tier US economic data release.

Hawish Fedspeak outweighs soft United States Consumer Price Index

The US Dollar witnessed good two-way trades on an eventful Thursday, having extended the early sell-off on tame Consumer Price Index (CPI) inflation data from the United States. US annual headline CPI rose 3.2% in July against a 3% increase recorded in June and 3.3% expectations. The Core CPI inflation ticked down to 4.7% YoY in the reported period vs. a 4.8% clip estimated. On a monthly basis, both the headline and Core inflation figures met expectations, arriving at 0.2%.

Softer annual inflation data from the world’s largest economy cemented the case for the US Federal Reserve (Fed) inaction in the upcoming meetings, sending the US Dollar sharply lower in sync with the US Treasury bond yields. Gold price, therefore, built on to its rebound to test the $1,930 round figure.

Gold buyers failed to retain control and yielded into the bearish pressures after the US Dollar jumped back into the game, tracking an impressive recovery in the US Treasury bond yields after San Francisco Fed President Mary Daly came to their rescue. In an interview with Yahoo Finance, Daly said “we're going to be watching supercore carefully, that's a big component of spending and it hasn't made much progress so far, we need to see it come back to pre-pandemic levels, “ adding that the central bank still has “more work to do” to combat rising prices. The solid turnaround in the overnight trades sent Gold price tumbling to fresh monthly lows, closer to the $1,910 level.

In Friday’s trading so far, Gold price has entered a phase of downside consolidation, digesting additional Fedspeak overnight, which was viewed as dovish. Philadelphia Fed President Patrick Harker noted that “unless there's any 'alarming' new data by mid-September, the stance would be to be patient and keep rates steady.” Meanwhile, Atlanta Fed President Raphael Bostic appreciated that Fed has been working hard to reduce too-high inflation.

Markets now weigh in on prospects of one final rate hike this year, as US inflation cools but labor market conditions still remain tight. Later in the day, Gold traders will look out for the University of Michigan (UoM) Consumer Sentiment and Inflation Expectations data for further clarity on the Fed’s policy path. Speeches from Fed policymakers will also hold the key for the US Dollar valuations alongside the end-of-the-week flows, which could offer a temporary reprieve to Gold buyers.  

Gold price technical analysis: Daily chart

Technically, nothing seems to have changed for Gold price in the near term, as the bearish 14-day Relative Strength Index (RSI) continues to back the downside bias.  

Any pullback in the Gold price, therefore, will be seen as a good selling opportunity.

On the upside, the Gold price recovery needs to crack the $1,930 round figure, above which the downward-sloping 50 DMA at $1,941 will be the next key hurdle.

Further north, the bearish 21 DMA at $1,949 will be on Gold buyers’ radars.

Alternatively, daily closing below the key support of the $1,910 level will challenge the critical 200 DMA at $1,900.

A sustained break below the latter will put the June 29 low of $1,883 to the test.