Gold Price drops to $1,700 neighbourhood, lowest since September post-US CPI

• Gold price turned lower for the third straight day and dropped to a fresh YTD low.
• A stronger US CPI print reaffirmed hawkish Fed expectations and exerted pressure.
• A sharp spike in the US bond yields, a bullish USD contributed to the selling bias.

Gold price attracted fresh selling near the $1,732 region during the early North American session and turned lower for the third successive day on Wednesday. The latest leg down followed the release of hotter-than-expected US consumer inflation figures and dragged the XAUUSD to its lowest level since August 2021, around the $1,710-$1,705 zone.

Gold price shrug off persistently high inflation

Gold, which is typically considered a hedge against rising inflation, failed to impress bulls after data released from the US showed that the headline CPI accelerated to a new four-decade high in June. In fact, the gauge accelerated to 9.1% on yearly basis from 8.6% in May and rose 1.3% MoM, surpassing expectations. Meanwhile, core inflation, which excludes food and energy prices, came in at 0.7% MoM in June and tick down to the 5.9% YoY rate, again beating consensus estimates.

US CPI historical chart

Fed rate hikes bets continue to weigh

Against the backdrop of unsurprisingly hawkish FOMC minutes released last week, the stronger-than-expected US CPI report reaffirmed bets for more aggressive rate hikes by the Federal Reserve. The markets are pricing in nearly 80% chances of a 75 bps rate increase on July 27 and the implied odds of 100 bps are up to 35% now. This, in turn, pushed the US Treasury bond yields sharply higher and was seen as a key factor that exerted heavy downward pressure on the non-yielding gold.

Stronger USD exerts additional pressure

The prospects for a faster policy tightening by the Fed assisted the US dollar to reverse its modest intraday losses and hitting a fresh two-decade high. This further contributed to driving flows away from the dollar-denominated gold. That said, a fresh wave of the global risk-aversion trade could offer some support to the safe-haven XAUUSD amid growing recession fears.

Also Read: Gold Futures: Scope for further decline

Recession fears could limit losses

Investors remain concerned that worried that a more aggressive move by major central banks to curb inflation, the ongoing Russia-Ukraine war and the latest COVID-19 outbreak would pose challenges to global economic growth. This had led to an extended selloff across the global equity markets and tends to benefit traditional safe-haven assets, including gold.

Gold price technical outlook

Gold price now looks to the $1,700 round-figure mark to lend some support. A convincing break below the said handle would be seen as a fresh trigger for bearish traders and drag the XAUUSD to September 2021 low, around the $1,787-$1,786 region. The downward trajectory could further get extended towards challenging the 2021 yearly low, near the $1,677-$1,676 area.

On the flip side, any meaningful recovery attempt now seems to confront stiff resistance near the daily peak, around the $1,732 region. Sustained strength beyond could trigger a short-covering move towards the $1,744 area en-route the $1,752 region and the $1,767-$1,770 strong horizontal support breakpoint.

Gold Price: Can gold prices hold above $1,700?