Gold Price retreats towards 16-month-old support as US inflation fuel recession woes

• Gold Price refreshes intraday low while reversing the corrective pullback from yearly bottom.
• Sour sentiment underpins US dollar demand as yields signal economic slowdown after CPI rallied to 40-year high.
• US PPI, risk catalysts may entertain XAUUSD traders but bears keep reins amid inflation, recession woes.

Gold Price (XAUUSD) remains pressured below $1,730, reversing the previous day’s bounce off an 11-month low, as it refreshes an intraday low around $1,727 during Thursday’s Asian session. The metal’s weakness could be linked to the market’s fears of recession and higher interest rates, not to forget the US dollar's strength.

The precious metal recovered the previous day from the yearly low as markets struggled to digest the US inflation data amid mixed comments afterward. However, the hawkish Fedspeak and the Bank of Canada’s (BOC) 100 basis points (bps) rate hike cleared the way for the XAUUSD bears on Thursday.

Also read: Gold Price Forecast: Post-CPI recovery stalls below critical resistance

Golden bull bites the gold dust

Gold Price drown on yield curve inversion

The key US Treasury yield curve, mainly between the 2-year and 10-year Treasury coupons, remains inverted and portrays fears of recession, which in turn weigh on Gold Price. That said, the US 10-year Treasury yields rose four basis points (bps) to 2.95% at the latest while its 2-year counterpart rose to 3.18% by the press time. With this, the yield curve marks around 23 bps of inversion among the aforementioned key bond coupons and signals the market’s fears of economic slowdown.

Biden tried to tame US inflation fears but failed

US President Joe Biden cited energy prices to probe bears after the inflation data, per the US Consumer Price Index (CPI) for June, jumped to the highest level in 40 years to 9.1% YoY versus 8.8% expected and 8.6% prior. That said, the Core CPI, which excludes volatile food and energy prices, eased to 5.9% from 6% prior but crossed analysts' forecast of 5.8%. Following the US data, White House (WH) Economic Adviser Brian Deese told CNBC that the CPI data shows the urgency for Congress to pass legislation to spur semiconductor manufacturing in the US, as reported by Reuters. On the other hand, US President Biden mentioned that CPI data is ‘out of data’ as gas prices have fallen.

Bank of Canada also favors XAUUSD bears

The Bank of Canada (BOC) hiked its policy rate by 100 basis points (bps) to 2.5% in June, compared to the market expectation for a rate increase of 75 bps. “With the economy clearly in excess demand, inflation high and broadening, and more businesses and consumers expecting high inflation to persist for longer, the Governing Council decided to front-load the path to higher interest rates”, said BOC Statement.

US Dollar Index drowns metal prices

US Dollar Index (DXY) justifies the four-decade high inflation figures while snapping a two-day downtrend, up 0.32% intraday near 108.40 by the press time, to weigh on the Gold Price. The greenback gauge’s latest run-up could also be linked to the fears of global economic slowdown and more pessimism surrounding Europe.

Hawkish Fedspeak favors bears

Fed policymakers recently favored the market’s hawkish bias while tracking the 40-year high US inflation data. Recently, San Francisco Federal Reserve Bank President Mary Daly said that her most likely posture is a 75bp hike in July but a 100bp is possible, as reported by the New York Times. Before that Richmond Federal Reserve President Thomas Barkin conveyed his support for higher rates in the last meeting while Cleveland Federal Reserve President Loretta Mester also said, “The data on CPI does not suggest a rate hike in July any smaller than that in June.”

Gold Price technical outlook

Gold Price pokes a late 2021 trough as it fails to extend corrective pullback from an upward sloping support line from March 2021. It’s worth noting, however, that the oversold RSI conditions challenge the XAUUSD bears.

That said, the $1,700 threshold can act as an additional downside filter, other than the aforementioned support line close to $1,709, to restrict short-term declines of the precious metal.

In a case where the XAUUSD bears keep reins past $1,700, the odds of witnessing a south-run towards the previous yearly low of $1,676 can’t be ruled out.

On the contrary, recovery moves need validation from the 78.6% Fibonacci retracement level of March 2021 to March 2022 upside, close to $1,760. Before that, the December 2021 low near $1,753 could restrict an immediate rebound.

Even if the quote rises past $1,760, gold buyers will seek validation from May’s low of $1,786 before retaking control.

Gold analysis forecast 11th to 15th July 2022