Gold Price Forecast: XAU/USD erases earlier gains, falls to $1870s as traders brace for US CPI

• Gold traders bracing for December’s US CPI data weighed on the yellow metal prices.
• The US Dollar rises, contrarily to US Treasury bond yields, dropping.
• Gold Price Analysis: Could test $1900 once it clears $188; otherwise, it could test $1860.

Gold’s rally stalled around $1887 after hitting an eight-month new high, though it erased some of those gains, turning negative on Wednesday amidst an upbeat market sentiment. Speculations that softer-than-estimated US inflation report Thursday could spur a Fed pivot increased. However, the greenback is recovering, a headwind for XAU/USD prices. At the time of writing, the XAU/USD is trading at $1873.68.

Gold Price falls despite risk-on mood, falling yields

US equities continue to advance in the mid-New York session, portraying investors’ mood. The XAU/USD is perceived as traders booked profits ahead of December’s US inflation report. Data is estimated to show the Consumer Price Index (CPI) on a monthly basis, dropping to 0%, while year-over-year data is expected to fall from 7.1% to 6.5%. Excluding volatile items inflation, the so-called core CPI is forecasted to rise 0.3% MoM, while the consensus for annual-based core inflation is 5.7%.

In the meantime, the US Dollar Index, a gauge of the greenback’s value against a basket of six currencies, is erasing earlier losses at 103.371, slightly up by 0.09%. Contrarily, US Treasury bond yields are falling four bps, down to 3.583%. Even though US bond yields extended their losses, XAU/USD continues to edge lower.

On the US monetary policy side, traders’ expectations for a Fed rate hike of 25 bps lie at a 77% chance, as shown by money market futures, while for a 50 bps increase is 23%. Money markets expect the Federal Funds rate (FFR) to peak at around 4.92% in June 2023.

Gold Price Analysis: Technical outlook

After peaking around $1887, XAGU/USD is almost flat. However, a daily close at around the $1876 area, Wednesday’s opening price, could exacerbate a fall toward the current week’s lows of $1865.40. Nevertheless, oscillators like the Relative Strength Index (RSI) and the Rate of Change (RoC) remain in bullish territory and continue to support higher prices, though a consolidation around $1875 ahead of the release of critical US data is on the cards.

XAU/USD will extend its gains towards $1900 if it breaks $1887. On the other hand, a fall beneath $1865.40 could pave the way toward the 20-day EMA at $1830.