Gold Price Forecast: XAU/USD awaits fresh directional impetus, US CPI inflation data holds the key

• 21-Daily Moving Average at $1,961 remains a tough nut to crack this week.  
• US Dollar drops with the US Treasury bond yields amid an upbeat market mood.
• Gold price could retest 100 DMA on hot United States Consumer Price Index data.

Gold price lacks a clear directional bias, flatlining at around $1,960 early Tuesday. The sluggish performance of the United States Dollar (USD), in the wake of an upbeat market mood and falling Treasury bond yields, is offering some support to the Gold price. Investors eagerly await the critical United States (US) Consumer Price Index (CPI) data slated for release on Tuesday ahead of Wednesday’s US Federal Reserve (Fed) policy announcements.

United States Consumer Price Index data to stir volatility

The US Dollar stays defensive this Tuesday, undermined by the risk trades witnessed on the Wall Street indices overnight. Investors cheer expectations that the Federal Reserve monetary policy tightening is nearing its end, anticipating the US Consumer Price Index data to come in softer than the prior month’s readings.

The headline annual CPI figure is seen rising 4.2% in May, lower than the 4.9% increase recorded in April. On the other hand, the Core CPI figure, which excludes volatile food and energy prices, is expected to advance 5.6%, at a slightly faster pace than April’s 5.5% growth. The monthly Consumer Price Index is forecast to rise 0.3% in May, having inched 0.4% higher in the fourth month of the year. However, the Core CPI is expected to increase 0.4%, the same pace as the previous month.  

Softer-than-expected US CPI data is likely to fuel a fresh downswing in the US Dollar, as it could imply that more Fed tightening is off the table later this year following the June rate hike pause. Dovish Fed outlook could motivate the Gold bulls, driving them back toward the $2,000 level. Conversely, the above forecast prints, especially the core monthly CPI figure, will reinstate expectations for rate hikes after the Fed potentially opts to skip this week. Markets are currently pricing an 81.5% probability of a Fed rate hike pause on Wednesday, while the rate hike bets for the July FOMC meeting stand at roughly 60%.

The US CPI inflation data is critical to determining the Fed’s next policy move and, in turn, the US Dollar valuations. Gold price, therefore, will remain at the mercy of the US Dollar dynamics and the US Treasury bond yields performance on the key US data release.

Among other factors affecting Gold price, the People’s Bank of China (PBOC) cut its seven-day Reverse Repo Rate from 2.0% to 1.90% to revive the dwindling economic growth. The PBOC rate cut news failed to have any significant market impact, as traders refrained from placing fresh bets ahead of the US CPI inflation data and the upcoming Fed event.

Gold price technical analysis: Daily chart

As observed on the daily chart. Gold sellers continue to lurk at the bearish 21-Daily Moving Average (DMA), now at $1,961. Note that the Gold price hasn’t yielded a daily closing above the latter since May 15.

If the 21 DMA remains a tough nut to crack, Gold price could extend the previous downbeat momentum to test the last day’s low at $1,949.

The next critical support area is the horizontal 100 DMA at $1,942. Daily closing below the latter will fuel a fresh downtrend toward the $1,930 round figure.  

The 14-day Relative Strength Index (RSI) is sitting just beneath the midline, favoring Gold bears heading into the key event risks from the United States.

On the flip side, acceptance above the 21 DMA barrier is needed on a daily closing basis to attempt fresh headways toward the flat 50 DMA at $1,990.

Ahead of that, Friday’s high of $1,973 and the June 2 high at $1,983 will be challenged.