Gold Price Forecast: XAU/USD needs softer United States CPI to take out $1,919 barrier

• Gold price retreats from six-week highs but holds above the $1,900 level.
• Softer United States Consumer Price Index could bolster dovish Federal Reserve bets.  
• Gold price could recapture the $1,919 barrier on softer CPI, as RSI stays bullish.

Gold price is seeing a pullback from six-week highs of $1,915 early Tuesday, pausing a three-day recovery rally. Gold’s bullish traders take a pause amid a rebound in the United States Dollar (USD) and the US Treasury yields ahead of the critical US Consumer Price Index (CPI) data release.

US Consumer Price Index could put Federal Reserve into a dilemma

The United States bond market is looking to stabilize following the Silicon Valley Bank (SVB) fallout-led massive upsurge, prompting a tepid recovery in the US Treasury bond yields across the curve. The two-year US Treasury bond yields eroded as much as 60 basis points (bps) to breach the 4.0% level on Monday, registering its biggest multi-day decline since 1987. At the time of writing, two-year US Treasury bond yields are recovering 3.0% so far, trading at around 4.15%. Meanwhile, the benchmark 10-year Treasury bond yields are adding 1.30% on the day to regain the 3.50% threshold. Despite the renewed calm in the US bond market, the Asian indices are still reeling from the pain induced by the US banking rout. Broad risk-aversion combined with the rebounding US Treasury bond yields offer the much-needed respite to the United States Dollar, initiating a retracement in the Gold price from higher levels.

The US Dollar is recovering ground also on the back of the positions readjustments ahead of the all-important United States Consumer Price Index (CPI) data due on the cards later this Tuesday at 12:30 GMT. On an annualized basis, the Consumer Price Index data is seen declining to 6.0% and the Core CPI, which excludes volatile food and energy prices, is also expected to edge a tad lower to 5.5% from January’s 5.6%. Meanwhile, the headline CPI data is seen falling to 0.4% MoM in February, compared with a 0.5% increase reported in January. The Core CPI is likely to steady at 0.4% MoM in the reported month.

A softer-than-expected US inflation data could help strengthen the ongoing narrative that the US Federal Reserve should pause its rate hike cycle amid mounting risks to financial stability. As a result, the US Dollar could witness a fresh selling wave, reaffirming Gold’s journey toward the $2,000 threshold. If the US CPI data surprises with a hot inflation print, it could throw the Federal Reserve into a dilemma on how it will balance its mandate to curb inflation with fractures in the economy.

The swift closure of Silicon Valley Bank on Friday, followed by Signature Bank days later, forced US authorities to immediately pledge support for other lenders and depositors. This banking stress rattled investors’ confidence and raised concerns about the probable Federal Reserve rate hike path.

Goldman Sachs scrapped its forecast for a March rate hike while JP Morgan called on for a 25 bps March Fed rate increase. On the other hand, Nomura bank predicts a 25 bps rate cut by the Federal Reserve this month. Meanwhile, Fed funds futures showed that traders see a 33% chance that the Federal Reserve holds rates this month while the market pricing shows rate cuts are expected as early as June.

Gold price technical analysis: Daily chart

Gold price found acceptance above the $1,900 threshold, having closed Monday above that level.

Gold bulls, however, faced rejection just below the February 3 high of $1,919, triggering a pullback. Daily closing above the latter is needed to resume the uptrend toward the year-to-date highs of $1,960.

The next stop for Gold buyers is seen at the $2,000 threshold. The 14-day Relative Strength Index (RSI) has turned lower but holds well above the midline, keeping bulls hopeful.

On the flip side, the $1,900 round number could be tested on further retracement in the Gold price. Should the correction gather steam, then Gold sellers will extend control toward the mildly bullish 50-Daily Moving Average (DMA) at $1,874.

Ahead of that, the February 9 high of $1,890 could come to the rescue of Gold buyers.