Gold poised to slump into $1,900 on uptick in US inflation, CPI clocks 14-month high

• Gold takes a step lower for Wednesday, approaching $1,900.00.
• US inflation is proving stubborn, sapping strength from the XAU/USD.
• Gold traders will need movement from the Federal Reserve on rates before bullish momentum can spin back up.

The XAU/USD wrapped up Wednesday trading clipping into its lowest prices in three weeks, tapping a fresh low of $1,905 into the ticker tape as the US inflation landscape continues to frustrate gold bugs.

Gold continues to etch in a rejection from the $1,940.00 level after last week’s action saw the yellow metal retreat as US Treasury yields and a stubborn US Dollar (USD) continue to plague the Gold chart. The precious metal is well off the year’s highs above $2,060.00.

US inflation proves a sticky weight on Gold prices

The US Consumer Price Index (CPI) printed 0.6% for the month of August, an acceleration of the previous month’s 0.2% printing, and inflation concerns are weighing down the XAU/USD. Annualized CPI rose 3.7% versus the market forecast 3.6%. 

The uptick in US inflation is causing markets to re-evaluate the odds of further rate hikes from the Federal Reserve (Fed), despite the Fed on pace to hold rates steady at their upcoming rate call next week.

While inflation figures are on the rise, many investors are not entirely surprised, and the downside on Gold is limited. CPI figures, while tipping into the high end, are largely congregated in the volatile energies section, driven by rising fuel costs and tricky food prices. Core CPI, the basket of goods excluding fuels and food, rose by 0.3% last month, versus the expected 0.2%. Still above market expectations, but a significant step down from the all-prices total CPI headline figure.

The gasoline component of the CPI rose 10.6% in a single month, and overall energies climbed 5.6%. Rising shelter costs also contributed to the inflation index’s gains, with rents increasing for the 40th straight month, up 0.3% for August.

Bolstered concerns about shifts in the Fed rate hike cycle is providing broad-base support for the USD, keeping a cap on Gold prices in the near-term as investors flock to the Greenback in defensive positioning. 

Gold bulls will be looking for a firmer picture about future rate cuts from the Fed moving forward, and the XAU/USD is likely to remain constrained to the downside until evidence of a reversal of the Fed’s momentum on the rate hike cycle begins to crystallize.

Elsewhere in the Gold landscape, US President Joe Biden’s White House administration is toying with the idea of instituting a royalty on precious metals extracted within the US; the royalties on hardrock minerals harvesting would be the first of its kind in the US.

A variable 4% to 8% net royalty would be applied to any precious metals pulled from federal lands within the US. The royalty would require a reversal of an 1872 law that specifically prevents the US from collecting mining royalties on hardrock mineral extraction, a measure that is unlikely to pass the Republican-held US Congress.

The royalty, if it were to succeed, would impact around 750 hardrock mines throughout the US, the majority of which are located in the West. The measure would also conflict with the White House’s current proposals to try and spur further investment in precious metals mining already under way within the US.

XAU/USD technical outlook

Daily candlesticks have Gold trading back into the low end, and is set to face a support zone around the $1,900.00 major handle. A declining trendline from May’s highs into the $2,050.00 region continues to hold as lower highs mark in an extension of topside resistance.

The 50- and 100-day Simple Moving Averages are flashing a bearish stance, with the 50-day SMA parked near $1,930.00 with the 100-day SMA sitting just beneath $1,950.00 and leaning towards the bearish side. The pullback from August’s low near $1,890.00 has sent the 50-day SMA sideways, but the longer SMA is consolidating bearish pressure.
 

XAU/USD daily chart

XAU/USD technical levels