• Gold Price has returned to its intraday low at $1,725.55 as DXY advances.
• The higher inflation rate has underpinned recession fears and a 1% rate hike expectation by the Fed.
• The harmful duo of higher US CPI and lower Average Hourly Earnings will trim the overall demand.

Gold Price (XAUUSD) has recaptured its day’s low after failing to sustain above the critical resistance of $1,730.00 in the Asian session. The precious metal is declining gradually after printing a high of $1,745.43 on Wednesday. A sideways movement is expected in the asset as the wild move of $1,707.16-1,745.43 recorded on Wednesday will take time in getting faded. Entering the European session, a significant drop below $1,725.00 will weaken the gold bulls.

The US dollar index (DXY) is displaying a lackluster performance in the Asian session after a strong opening at around 108.30. The DXY is auctioning back and forth in a narrow range of 108.20-108.47. It looks like the market participants are building an initiative buying structure that will drive the asset beyond the fresh 19-year high at 108.58.

Also Read: Gold Price Forecast: For how long can XAUUSD defend $1,700?

Red-hot inflation escalates recession fears

Higher inflation harms paychecks

The US Bureau of Labor Statistics reported the annual inflation rate at 9.1%, higher than the prior release of 8.6% and the estimates of 8.8%. This is going to trim the value of ‘paychecks’ received by US households. A very large real income shock to the US households will not only display its multiplier effects on the aggregate demand and growth forecasts but will also reduce Consumer Confidence.

Considering the last week’s US employment data, the Average Hourly Earnings remained lower than their prior print. A situation of a higher inflation rate and lower Average Hourly Earnings will reduce the consumption and savings of the households significantly.

Odds of a surprise rate hike by 100 bps advances

The release of the soaring inflation rate has underpinned the expectations of a rate hike by 100 basis points (bps) by the Fed. There is no denying the fact that the Federal Reserve (Fed) won’t make a historic move of elevating interest rates by 1%. The Fed is unintentionally dedicated to bringing price stability and in order to achieve the same, it may choose to announce the unusual. The announcement of a 1% rate hike by the Bank of Canada (BOC) has infused fresh blood into the psychology of central banks’ policymakers that a 1% rate hike could be a viable option.

Fed policymakers turn extremely hawkish for July interest rate policy

The statement from Fed policymakers for July monetary policy has turned extremely hawkish now after the price pressures surpass 9%. San Francisco Fed chief Mary Daly, in an interview with New York Times, stated that “My most likely posture is 0.75%, because of the data I have seen”. In today’s session, Fed Governor Christopher Waller is scheduled to bring forward his views on inflation and expected rate hike.

Recession situation seems more visible now

The global economy is going through the phase of cost-push inflation and the market participants and critics are blaming the Fed for a delayed response to the price pressures. No doubt, the upbeat employment opportunities and solid growth prospects in the US economy are efficient to take the bullet in place of the Fed. The upbeat catalysts are supporting the Fed to tighten policy further vigorously. However, the inflation rate is not displaying any sign of making even an interim top.

There is a limit for the economic catalysts to take forward the burden of a higher inflation rate. In case of exhaustion, demand will shift extremely lower and the recession situation will be for real.

Gold technical analysis

Gold price is oscillating in a tad longer inventory distribution phase which is plotted in a range of $1,707.16-1,745.43 on the four-hour scale. Taking into account the prior vertical downside move, the gold prices are expected to scale southwards again.

The bright metal has failed to sustain above the 20-period Exponential Moving Average (EMA) at $1,734.16, which signals that the reversal move from the gold bulls was less confident. Also, the 50-EMA at $1,751.16 remained untouched, which adds to the downside filters.

Meanwhile, the Relative Strength Index (RSI) (14) has returned to the bearish range of 20.00-40.00, which indicates a fresh leg of downside impulsive wave ahead.

Gold four-hour chart

Can gold prices hold above $1700 as focus shifts to inflation data?