Gold Price Forecast: Bear cross outweighs softer US inflation, 50 DMA support at risk

• Gold price drops to 50 DMA support after failing to close Wednesday above $1,800.
• Bear cross overshadows soft US CPI-led fading aggressive Fed tightening bets.
• XAU/USD could extend the retreat if risk-aversion intensifies and boosts the USD. 

Gold price is extending its retreat from one-month highs of $1,808, as the US dollar is in a recovery mode amid sluggish Treasury yields and mixed market sentiment. Investors assess the odds for a big Fed rate hike next month. Meanwhile, the brewing US-Sino trade conflict and renewed China’s covid lockdowns temper the soft US inflation-led market optimism. Earlier on, Reuters reported some sources, saying that “China's war games around Taiwan have led Biden administration officials to recalibrate their thinking on whether to scrap some tariffs or potentially impose others on Beijing.” Surging covid cases in China and probable lockdowns have amplified recession fears, reviving the US dollar’s safe-haven demand at gold’s expense.

Coming up next is the US Producer Price Index (PPI) and weekly Jobless Claims, which could influence the market’s pricing of the Fed rate hikes once again. Markets still remain hopeful over big Fed rate increases amid hawkish commentary. San Francisco Fed president, Mary Daly, “we're not near done yet in battle against inflation.” Chicago Fed President Charles Evans said Wednesday that he does not expect that the Fed is finished with rate rises. The US Factory gate price will be closely watched, as it may confirm the first sign of peak inflation.

Also read: Gold Price Forecast: Bulls hesitate in a risk-on environment

The US inflation, as measured by the Consumer Price Index (CPI), softened to 8.5% YoY in July vs. 8.7% expected and 9.1% previous. The core CPI arrived at 5.9% YoY vs. 6.1% expected and 5.9% last. Meanwhile, the monthly figures came in at 0% in the reported month while core eased to 0.3% vs. 0.5% expectations. Easing inflationary pressure in the world’s largest economy dragged bets for a 75 September bps rate hike to 32% vs. 68% pre-data release. This triggered a 1.2% sell-off in the US dollar across the board while the yields were smashed across the time curve. Currently, the CME FedWatch Tool shows a 43% chance of a super-sized rate lift-off next month.

Gold price technical outlook: Daily chart

Technically, gold price failed to sustain above $1,800, now dropping to test the bearish 50-Daily Moving Average (DMA) at $1,784.

Daily closing below the latter will extend the corrective decline towards the $1,770 round figure, below which the $1,750 support zone will be tested again.

The 100 and 200 DMA bear cross is playing out and weighing negatively on the bright metal even though the 14-day Relative Strength Index (RSI) still remains above the midline.

On the upside, acceptance above the $1,800 mark is critical to resume its recovery momentum. The monthly high at $1,808 and the July 5 high at $1,812 will be next on buyers’ radars.