Gold Price Forecast: XAU/USD looks to retest $2,010 support ahead of US CPI inflation

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  • Gold price keeps the red near five-day lows ahead of the key US inflation data.
  • US Dollar extends gains amid China’s holiday-led thin trades and pre-US CPI nervousness.  
  • Gold price breached the daily support line at $2,023, eyes more pain on bearish RSI.

Gold price is keeping its losing momentum intact early Tuesday, falling for the fifth day in a row. Gold price is meandering near five-day lows of $2,012, undermined by a sustained US Dollar (USD) demand, as the US Treasury bond yields see a modest uptick.

US CPI inflation data set to rock Gold price

Markets eagerly wait for the all-important Consumer Price Index (CPI) data from the United States to place fresh directional bets on the Gold price. The data could have a strong bearing on the US Federal Reserve (Fed) interest rates outlook, with markets now paring back expectations of early and aggressive Fed rate cuts this year.

“Inflation in the US is forecast to rise at an annual pace of 3% in January, a tad softer than the 3.4% increase reported in December. The Core CPI inflation rate, which excludes volatile food and energy prices, is forecast to tick down to 3.8% from 3.9% in the same period. The monthly CPI and the Core CPI are seen increasing 0.2% and 0.3%, respectively,” FXStreet analyst noted.

Markets are currently pricing a meager 14%% chance of a March Fed rate cut. Meanwhile, the odds of a rate cut by the Fed for the May meeting stand at about 60%.

An upside surprise in the US CPI figures is likely to reinforce the Fed’s hawkish rhetoric, fuelling a fresh selling wave in the Gold price. On the other hand, a softer-than-expected headline and core CPI data could revive early Fed rate cut expectations and spark a recovery rally in the bright metal.

In the lead-up to the US CPI showdown, Gold price is likely to stay on the back, as the US Dollar finds fresh demand on resurfacing geopolitical tensions between the US and the Middle East. US military officials said Tuesday that Yemen’s Iran-aligned Houthis fired two missiles on Monday at an Iran-bound cargo ship in the Red Sea, causing minor damage to the vessel but no injuries, per Reuters.

Additionally, light trading conditions due to the Lunar New Year holiday in China and major Asian markets could leave Gold price in limbo until the publication of the January US inflation report.

Gold price technical analysis: Daily chart

As observed on the daily chart, Gold price closed Monday below the rising trendline support at $2,023, hitting a fresh five-day low at $2,012.

With the technical breakdown, the downside opens up for Gold price toward the $2,000 mark. However, Gold sellers need to crack the $2,010 static support before.

If the selling pressure intensifies, Gold price could challenge the 100-day Simple Moving Average (SMA) at $1,992 on a sustained move below the $2,000 threshold.

The 14-day Relative Strength Index (RSI) is trading well below the 50 level, suggesting that there is more pain in-store for Gold buyers.

Meanwhile, the 21-day and 50-day SMAs Bear Cross, confirmed last week, also remains in play. 

On the contrary, if Gold price manages to defend the $2,010 support, the trendline support-turned-resistance, now at $2,024 will be tested.

Further north, the 21-day SMA at $2,027 will be eyed, above which the 50-day SMA at $2,033 could test bearish commitments on the road to recovery.

Acceptance above the latter is needed to take on the strong resistance at the $2,040 level.

Gold FAQs

Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.

Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.

Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.

The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.