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XAU/USD Clings to Gains above $1,860, Focus Remains on US CPI Report

The gold price is in the midst of a resurgence after falling to its lowest level in over a month. The XAU/USD has clung to its gains above $1,860, a nearly 0.50% increase for the day. The upward momentum is likely due to a weaker US dollar and fears of a recession that have made investors wary of riskier investments. However, the uptick lacks follow-through, as traders await the release of crucial consumer inflation data from the United States.

The US dollar’s overnight pullback from a multi-week high is partly responsible for the increase in gold price. The decline in US Treasury bond yields is also contributing to the XAU/USD‘s upward momentum. As a result, the USD-denominated gold price is benefiting. Furthermore, the cautious market sentiment, prompted by looming recession risks, is providing additional support to the safe-haven precious metal.

Despite these developments, traders are hesitant to take aggressive positions and are waiting for the latest Consumer Price Index (CPI) data from the United States. The critical US CPI report is expected to have a significant impact on the Federal Reserve’s next policy moves, which will drive the demand for the US dollar and provide a fresh directional impetus to the non-yielding gold price.

While the annual revisions of CPI data by the Labor Department showed that monthly consumer prices in the US rose in December instead of falling as previously estimated, a stronger US CPI print could allow the US central bank to stick to its hawkish stance for longer. This prospect of further tightening by the Fed could boost the Greenback and undermine the gold price. Therefore, the Fed’s hawkish outlook should cap the gold price.

Several Federal Open Market Committee (FOMC) policymakers, including Fed Chair Jerome Powell, recently stressed the need for additional interest rate hikes to gain full control of inflation. As a result, the market’s immediate reaction to a softer-than-expected US CPI print is more likely to remain limited. This, in turn, suggests that the path of least resistance for the gold price is to the downside.

Gold Price Technical Outlook

From a technical perspective, the overnight break below the 50-day Simple Moving Average (SMA) could be seen as a fresh trigger for bearish traders. Therefore, any subsequent recovery might still be seen as a selling opportunity and runs the risk of fizzling out rather quickly near the $1,872-$1,875 region. This is closely followed by the $1,890 hurdle, above which the gold price could surpass the $1,900 mark and test the next relevant resistance near the $1,925-$1,930 congestion zone.

On the flip side, the $1,850 level is now seen as the immediate downside support. If there is any follow-through selling, the gold price could be dragged further towards the $1,830 intermediate support en route to the $1,818-$1,817 zone and the $1,800 round figure.