Gold Price Analysis: XAU/USD pares ECB, Powell-led losses above $1,700, focus on inflation

• Gold price picks up bids to refresh intraday high, reverses the previous day’s losses.
• Fed’s Powell, ECB’s Lagarde both advocate for higher rates amid a fight against inflation.
• Firmer US data, Sino-American headlines seem to impress XAU/USD buyers of late.
• Inflation from China, US will be important as Fed policymakers approach blackout.

Gold price (XAU/USD) renews intraday high near $1,715 as it consolidates the previous day’s losses amid cautious optimism during Friday’s Asian session. The metal’s recent upside could also be linked to the lack of major data.

That said, comments from US Treasury Secretary Janet Yellen, signaling likely positive change in the US-China trade ties, seemed to have helped the market sentiment of late. However, the Wall Street Journal’s (WSJ) piece challenges the optimism a bit by suggesting further hardships for China’s technology companies. Recently firmer US data and hopes that the global central bankers will be able to overcome inflation-led blow with a holistic approach and higher rates also seemed to have favored the market’s mood.

US Treasury Secretary Yellen raised hopes for softer inflation and US President Biden’s consideration to remove some tariffs on China. Talking about data, after recently firmer ISM PMIs and Goods Trade Balance, the US Weekly Initial Jobless Claims slumped to the lowest levels since May, with the latest figures beyond 222K.

Previously, the European Central Bank (ECB) matched the market’s expectations by announcing a 75 basis point (bps) increase in the key rates. As a result, the interest rate on the main refinancing operations, the marginal lending facility and the deposit facility will be increased to 1.25%, 1.5% and 0.75% in that order.

Following the announcements, ECB President Christine Lagarde said, "It will take more than 2 meetings but less than 5 to get to the end of hikes." The policymaker also resisted confirming the next rate hike as 75 bps while highlighting the data dependency. It should be noted that ECB’s Lagarde mentioned that the downside scenario for growth includes negative growth in 2023.

On the other hand, Fed Chairman Jerome Powell said that they need to act forthrightly and strongly on inflation, as reported by Reuters. "We think by our policy moves we will be able to put growth below trend and get labor market back into better balance," added Fed’s Powell.

Against this backdrop, the US 10-year Treasury yields remain sidelined near 3.32%, after a positive day, whereas the S&P 500 Futures traces Wall Street’s gains around 4,020.

Looking forward, China’s Consumer Price Index (CPI) and Producer Price Index (PPI) for August will be important amid talks over the recession. However, major attention will be given to the next week’s US CPI as Fedspeak reaches the blackout period.

Technical analysis

Gold price cheers a sustained bounce off a seven-week-old ascending support line, at $1,688 by the press time, while again heading towards the 21-day EMA hurdle surrounding $1,730.

The recovery moves also take clues from the impending bull cross of the MACD and the recent rebound in the RSI (14).

In a case where the XAU/USD remains firmer past $1,730, the upper line of the four-month-long bearish channel, around $1,770 at the latest, will be crucial to watch.

Alternatively, pullback moves remain elusive until the quote remains above the $1,688 support line. Also acting as the downside filter is the yearly low surrounding $1,680.

If at all, the gold bears keep reins past $1,680, the odds of witnessing a gradual south-run towards the $1,600 threshold, comprising the aforementioned channel’s support line, will be in focus.

Gold: Daily chart

Trend: Limited recovery expected