Gold Price Forecast: XAU/USD eases from multi-month peak post-US Retail Sales

• Gold caught fresh bids on Tuesday and shot to the highest level since June.
• Rising price pressures benefitted the metal’s appeal as a hedge against inflation.
• The USD stood tall near 16-month tops on upbeat US data and capped gains.

Gold regained positive traction on Tuesday and shot to the highest level in more than five months, around the $1,877 region during the early North American session. Persistent concerns about rising consumer prices turned out to be a key factor that continued benefitting the metal's appeal as a hedge against inflation. This, along with retreating US Treasury bond yields, pushed the non-yielding yellow metal to the highest level since June 11.

Meanwhile, worries about the continuous surge in inflationary pressures weighed on investors' sentiment. This was evident from the prevalent cautious mood around the equity markets, which further extended some support to the safe-haven XAU/USD. The combination of factors helped offset a strong bullish sentiment surrounding the US dollar, which tends to undermine demand for dollar-denominated commodities, including gold.

The USD stood tall near 16-month tops amid expectations that the Fed would be forced to adopt a more aggressive policy response to contain stubbornly high inflation. In fact, the markets are now pricing in the possibility for an eventual Fed rate hike move by July 2022 and the Fed funds futures indicate a high likelihood of another raise by November. This might hold back bulls from placing fresh bets and cap the upside for gold.

On the economic data front, the US monthly Retail Sales surpassed consensus estimates and recorded a strong growth of 1.7% in October. Excluding autos, core retail sales also climbed by 1.7% in October as against market expectations for a rise of 1%. The data reinforced hawkish Fed expectations and remained supportive of the bid tone surrounding the greenback, which, in turn, led to a slight pullback in gold prices.

Technical outlook

From a technical perspective, the XAU/USD bulls might now be looking to extend the recent upward trajectory further beyond a descending trend-line extending from August 2020. That said, RSI (14) on the daily chart is already flashing slightly overbought conditions and warrants some caution. This makes it prudent to wait for some near-term consolidation or a modest decline before positioning for the next leg up.

Meanwhile, any subsequent positive move should allow gold to reclaim the $1,900 mark for the first time since June. The momentum could further get extended towards the next relevant hurdle near the $1,910-12 supply zone.

On the flip side, the overnight swing lows, around the $1,856 area now seems to protect the immediate downside. This is followed by support near the $1,850 level and the $1,845 region, below which gold could slide back to test the $1,834-32 strong resistance breakpoint. The downfall, however, might still be seen as a buying opportunity and remain limited.

Levels to watch