Gold Price approaches $1,842 support ahead of US inflation

• Gold Price remains pressured towards a convergence of 200-DMA, three-week-old support line.
• US dollar retreats as market sentiment dwindle ahead of key inflation data, Treasury yields grind near monthly top.
• Hopes of higher US CPI, growth fears favor XAUUSD sellers ahead of next week’s Fed meeting.

Gold Price remains depressed at around $1,845, keeping the previous day’s bearish bias as the metal approaches the key support confluence heading into Friday’s European session. The bullion’s latest weakness ignores the pullback in the US Dollar. That said, the market’s indecision ahead of the key US Consumer Price Index (CPI) data seems to join the firmer US Treasury yields to weigh on the quote.

Gold Price bears the burden of strong Treasury bond yields

US 10-year Treasury bond yields rise 1.7 basis points (bps) to 3.057% during the three-day uptrend. In doing so, the benchmark bond coupons brace for the second weekly gain while poking the monthly top marked the previous day. Fears of aggressive central bank actions could be linked to the recent run-up in the bond yields.

Also read: Gold Price Forecast: XAUUSD at a critical juncture, US inflation holds the key

Coronavirus woes in China weigh on XAUUSD

The return of covid fears in China, due to the latest activity restrictions in Shanghai and Beijing, appears to weigh on the Gold Price due to the dragon nation’s status as one of the world’s top bullion consumers. “China's commercial hub of Shanghai faces an unexpected round of mass COVID-19 testing for most residents this weekend - just 10 days after a city-wide lockdown was lifted - unsettling residents and raising concerns about the impact on business,” said Reuters.

ECB couldn’t impress gold buyers

The European Central Bank (ECB) signaled that the fears of inflation challenge the old continent’s growth, via the economic forecasts. The bloc’s central bank also matched market consensus while announcing an end of Quantitative Easing from July 1 and 25 basis points (bps) of a rate hike on July 25. However, the market’s expectations of a 50 bps move in July were pushed back and hence drowned the gold prices after the ECB announcements.

Options market signals continue to tease the gold sellers as the daily risk reversal (RR), the spread between the calls and the puts, brace for the third weekly fall. That said, the weekly RR’s latest figures of -0.195 also appear the smallest count in a month. Details also suggest that the monthly RR signal a three-day downtrend with -0.250 level while the daily figures remain negative as well, at -0.35 by the press time, per Reuters data.

US inflation is the key

Inflation

US Consumer Price Index (CPI) data is likely to print no change in the headline figure of 8.5% YoY. However, the core CPI, theoretically known as CPI ex Food & Energy, is expected to retreat from the 6.2% level to 5.9% and can challenge the gold sellers. Though, the White House has already signaled a higher inflation number, due to a jump in energy prices, which in turn raise hopes of a disappointment and a rebound in the gold prices should the actual US inflation figures recede.

Gold Price technical outlook

Gold Price portrays a one-week-old downtrend as sellers attack a confluence of the 200-DMA and an upward sloping support line from May 18, around $1,842 by the press time. The metal’s recent weakness takes clues from the RSI divergence, as well as the bear cross between the 50-DMA and the 100-DMA.

That said, the RSI’s failure to back the higher low of prices signals that bears are flexing muscles. It’s worth noting that the 50-DMA’s sustained trading below the 100-DMA also keeps the sellers hopeful.

Even so, a clear downside break of the $1,842 support confluence becomes necessary for the XAUUSD sellers before challenging the monthly low near $1,828. Following that, a downward trajectory towards the $1,800 threshold and then to the yearly bottom surrounding $1,786 can’t be ruled out.

Alternatively, a one-week-old resistance line near $1,851 guards the recovery moves of Gold Price ahead of the recent peak surrounding $1,874. In a case where the commodity prices rally beyond $1,874, the 50-DMA and the 100-DMA, respectively around $1,883 and $1,890, could challenge the XAUUSD buyers.

Gold may be on verge of another selloff