Gold Price fails to build on Friday's gains ahead of key events

• Gold Price turned south following the impressive upsurge witnessed last Friday.
• Investors grow increasingly concerned over the US economy tipping into recession.
• A daily close below $1,840 could open the door for additional losses ahead of Fed meeting.

Gold Price reversed its direction at the start of the week and erased all the gains it recorded last Friday. The risk-averse market environment is helping the dollar outperform its rivals on Monday and making it difficult for XAUUSD to shake off the bearish pressure.

Technicals paint a mixed picture

The near-term technical outlook suggests that buyers remain on the sidelines despite Friday's impressive upsurge. The 200-day SMA forms significant support at $1,840 and sellers could look to dominate XAUUSD's action if that level fails ahead of the FOMC's policy announcements on Wednesday.

Gold Price looks fragile on hawkish Fed bets

Markets are pricing in a more-than-50% probability of the Federal Reserve hiking its policy rate by a total of 125 basis points (bps) in the next two meetings, the CME Group's FedWatch Tool shows on Monday. By September, there is an 80% chance that the Fed will raise its rate by at least 175 bps from the 0.75%-1% range where it stands today. 

Friday's inflation data from the US seems to have caused markets to reconsider the Fed's rate outlook. The US Bureau of Labor Statistics announced that the Consumer Price Index (CPI) jumped to a fresh multi-decade high of 8.6% on a yearly basis in May, compared to the market expectation of 8.3%. Additionally, the Core CPI, which excludes volatile food and energy prices, rose by 0.6% on a monthly basis. 

US CPI data revived inflation fears

Although US bond yields surged higher with the initial reaction to the inflation data, gold managed to find demand ahead of the weekend. Commenting on the market reaction, "both 10-year yields – relevant to gold – and those on two-year notes, which are best for gauging how markets expect the Fed to act, advanced," noted FXStreet Analyst Yohay Elam. "However, those on two yields rose at a much faster pace. If they surpass the 10-year yield – yield curve inversion – it has historically tended to reflect fears of a brewing recession. If the US economy shrinks, the Fed would eventually have to cut interest rates and therefore, long-term yields such as 10-year ones would have to fall. That is what pushed gold higher."

Meanwhile, China's zero-COVID policy continues to cloud gold's demand outlook. Beijing officials announced over the weekend that the city's most populous district, Chaoyang, will go into mass testing because of a "ferocious" coronavirus outbreak. Moreover, Shanghai will reportedly conduct a fresh round of testing for most of its 25 million residents. These developments coupled with growing recession fears caused safe-haven flows to dominate the financial markets on Monday.

Gold Price technical outlook

Gold Price was last seen testing the 200-day SMA at $1,840. In case XAUUSD makes a daily close below that level and starts using it as resistance, it could fall toward $1,825 (June 10 low) and $1,810 (the end-point of the latest downtrend) afterwards.

On the upside, $1,850 (Fibonacci 23.6% retracement) aligns as interim resistance ahead of $1,875 (Fibonacci 38.2% retracement) and $1,890 (100-day SMA).

Meanwhile, the Relative Strength Index (RSI) indicator on the daily chart retreated below 50, confirming the bearish tilt in the near-term technical outlook.

Gold Price report for the week ahead