Gold Price Forecast: XAU/USD has more room to rise after US inflation-led explosion

Will US inflation trigger a sustained move above $1,834 in XAU/USD?  This was a rhetorical question to which the response was aptly provided after the US Consumer Price Index (CPI) jumped to the highest level in 31 years in October, arriving at 6.2% YoY. The multi-decade rise in the US inflation fuelled a massive rally in gold price, busting the critical $1,834 resistance. Gold price surged to the highest levels since June 16 at $1,869 before pulling back sharply to settle at $1,853.

Gold soared despite the renewed strength in the US dollar, as the jump in inflation bolstered the metal’s appeal as an inflation hedge. The surge in the cost of food, gas, and housing sent the US prices sky-rocketing, burning a hole in consumers’ pockets at a time where the Fed is patient with keeping the rates lower for longer. The decline in Wall Street indices amid mounting inflation concerns and China Evergrande worries also underpinned gold’s demand. The sharp rebound in the US Treasury yields across the curve, however, checked the upside in gold price.

Amid holiday-thinned market conditions, gold is correcting slightly after the recent upsurge, with US Treasury yields holding onto their recent recovery gains. However, the pause in the US dollar’s rally across the board is limiting the pullback in gold price. Looking ahead, gold price action could likely remain limited, trading within familiar ranges, in the aftermath of US inflation and amid a Veterans Day holiday in the US.

Gold Price Chart - Technical outlook

Gold: Daily chart

Gold price exploded in tandem with US inflation, extending the big technical breakout witnessed last Friday.

The bright metal remains on track for additional upside if it takes out the June 16 highs of $1,869, above which the immediate hurdle is seen at the June 14 tops of $1,878.

Further up, the $1,800 psychological level will be back in play.

The 14-day Relative Strength Index (RSI) is holding firmer, approaching the overbought zone, suggesting that there is more room to rise, however, a minor pullback cannot be ruled out towards $1,840 after Wednesday’s blistering rally.

The previous critical resistance – now support at $1,834 – will challenge the bullish commitment, if the downside extends. The next stop for the sellers will likely be at Wednesday’s low of $1,822.