Gold Price Forecast: XAU Bearish with US Inflation, Fed’s Rate Stance in Focus

Highlights

• Gold near one-month lows.
• U.S. CPI up 3.2%, affects gold.
• Short-term gold outlook: bearish.

Overview

Gold (XAU) prices continue to linger near their one-month lows this Friday. This comes despite the recent cooler-than-expected U.S. inflation figures. The precious metal is set to record its most challenging week in nearly two months, impacted by the robust performance of the U.S. dollar and bond yields. Spot gold saw a minor increase of 0.1% to reach $1,913.95 per ounce, hovering close to its lowest since early July. On the flip side, U.S. gold futures experienced a slight dip.

U.S. CPI Rise Affects Gold

The backdrop for this decline was Thursday’s revelation. The U.S. Consumer Price Index (CPI) witnessed a 3.2% year-on-year rise, falling just short of the anticipated 3.3%. This development has fueled speculation that the U.S. Federal Reserve may not opt for another interest rate hike in 2023. It’s pivotal to note that hikes in interest rates can dampen gold’s appeal. These hikes can elevate bond yields, subsequently increasing the opportunity cost of possessing non-yielding assets like gold.

Core CPI’s Growth Lags Expectations

However, there’s a nuance to the CPI data. While the core CPI’s growth rate of 4.7% was slower than projected, it still isn’t an ideal figure. The gold market responded with a lukewarm rise, signaling a lack of firm conviction among traders. Additionally, comments from Fed member Mary Daly introduced further ambiguity. She hinted that decisions regarding future rate adjustments, be it maintaining or hiking, remain undecided.

Bearish Short-Term Outlook

In summary, as the week draws to a close, gold prices have diminished by approximately 1.4%. Concurrently, the U.S. dollar index and 10-year Treasury bond yields are both on a path to mark their fourth successive weekly ascent. Given the prevailing circumstances and market dynamics, the short-term outlook for gold leans bearish.

Technical Analysis

Gold (XAU) is currently trading at 1916.05, a slight increment from its prior 4-hour close of 1913.54, showing minimal upward movement. In comparison to the 200-4H moving average of 1940.77, the precious metal is trading below this threshold, indicating bearish sentiment. The same can be inferred when looking at the 50-4H moving average of 1933.14; the current price remains below this average as well. The 14-4H RSI stands at 40.02, suggesting a weakening momentum but not yet reaching the oversold territory.

With the current price closely grazing the main support area ranging from 1914.00 to 1902.75, and being considerably below the main resistance range of 1979.00 to 1987.53, it suggests that gold is under bearish pressure for the short-term.