Gold Price Forecast: XAU/USD jumps above $1,920 after US data

• US Dollar weakens following Q4 US Employment Cost Index.
• Data points to more evidence of a slow down in inflation.
• XAU/USD erases daily losses with a rebound of more than $10.

Gold prices bounced sharply higher following the release of US labor costs data for the fourth quarter. More evidence of a slowdown in inflation pushed US yields to the downside and Wall Street to the upside, weakening the greenback.

The Employment Cost Index (ECI) rose 1% in the fourth quarter, below the 1.1% of market consensus and marked the third consecutive slowdown. Still the index is up by 4% compared to a year ago. The evidence of an improvement in the inflation outlook boosted US yields ahead of Wednesday’s FOMC decision.

Still the numbers are high, suggesting that inflation is still not consistent with Fed’s target. “Even as supply chain pressures ease, commodity prices cool and housing costs temper, we think the FOMC still wants to see a bit more slowing in wage growth before the Committee feels confident inflation is firmly headed to 2% over the medium term”, said analysts at Wells Fargo.

The greenback tumbled after the report and also did Treasuries, boosting gold. Also equity and crude oil price rose. XAU/USD erased all losses and it is hovering around daily highs at $1,927.

Earlier on Tuesday, gold bottomed at $1,900 a critical support. Now price is back above the $1,920 zone, another relevant technical area. If it remains above, a test of $1,935 will be on the cards.

Technical levels