Gold Price Forecast: XAU/USD plummets amid stronger US CPI-led USD rally

• Gold meets with aggressive supply following the release of a stronger US CPI report.
• Bets for more aggressive Fed rate hikes boost the USD and weigh on the commodity.
• A sharp fall in the equity markets could offer support to the safe-haven XAU/USD.

Gold came under intense selling pressure during the early North American session and dives to a fresh daily low, around the $1,708 area in the last hour.

The US dollar catches aggressive bids in reaction to stronger US consumer inflation figures and stages a solid recovery from the monthly low touched earlier this Tuesday. This, in turn, is seen as a key factor weighing heavily on the dollar-denominated commodity.

The US Bureau of Labor Statistics reported that the headline CPI decelerated to 8.3% YoY in August from 8.5% in the previous month. This, however, was slightly above consensus estimates for a fall to 8.1%. Adding to this, the gauge unexpectedly rose by 0.1% in August.

Additional details of the report revealed that the Core CPI, which excludes volatile food and energy prices, rose by 0.6% in August (0.3% anticipated) and climbed to 6.3% on yearly basis from 5.9% in July. The data lifted bets for a more aggressive policy tightening by the Fed.

In fact, the markets have now started pricing in the possibility of a jumbo 100 bps at the upcoming FOMC meeting on September 20-21. This is evident from a sharp spike in the US Treasury bond yields, which further contributes to driving flows away from the non-yielding gold.

That said, a dramatic turnaround in the global risk sentiment, as depicted by a steep decline in the equity markets, could offer some support to the safe-haven precious metal. Nevertheless, the fundamental backdrop suggests that the path of least resistance for gold is to the downside.

Technical levels to watch