Gold Price Forecast: XAU/USD yearns for acceptance above $1,900 after US Consumer Price Index

• Gold price struggle with $1,900 extends as US Dollar recovers with US Treasury bond yields.
• Softer United States Consumer Price Index data reinforce Federal Reserve pivot expectations.
• US Consumer Sentiment data and end-of-the-week flows could affect Gold traders.
• Gold price enters the overbought zone but buyers may capitalize on any pullbacks.

Gold price is retreating from near eight-month highs of $1,902 reached following the release of the United States Consumer Price Index (CPI) data on Thursday. Gold bulls take a breather this Friday, as the US Dollar is attempting a minor recovery in tandem with the US Treasury bond yields, as the dust settles after volatile trading seen during Thursday’s American session.

US Dollar reels from the United States Consumer Price Index-led blow

The United States Dollar is staging a modest recovery from a seven-month low at 102.08, as the US Treasury bond yields also recover from a softer US Consumer Price Index print-induced blow.  The headline Consumer Price Index for December increased 6.5% over the 12 months while the core CPI dropped to 5.7% YoY, meeting estimates and against November’s 6%. The monthly Consumer Price Index for all items less food and energy, however, rose 0.3% in December while the main index fell 0.1% MoM in December.

Softening of inflation in the United States bolstered expectations that the US Federal Reserve (Fed) will slow its pace of tightening, with markets pricing in a 25 basis points (bps) rate hike in February as a done deal. According to the CME FedWatch Tool, markets see a 75% probability of another 25 bps rate increase in March. The Fed funds peak rate is now seen at 4.97%, as investors also brace for potential rate cuts by the end of this year. The strengthening dovish Federal Reserve expectations triggered a US Dollar collapse across the board, as the benchmark 10-year US Treasury bond yields took out the critical support at 3.50%. In response, Gold price rallied further to recapture the $1,900 threshold.

Focus shifts to United States Consumer Sentiment data

Heading into the United States University of Michigan (UoM) preliminary Consumer Sentiment and Inflation Expectations data, Gold traders are resorting to profit-taking at higher levels. The end-of-the-week flows could also deepen the pullback in the Gold price, as investors could cover their USD shorts as the critical US Consumer Price Index is now out of the way. Risk trends and sentiment around the US Treasury bond yields will be closely watched for fresh trading cues on Gold price.

Markets also digest the mixed Chinese trade balance report and news that India's Gold imports plunged 79% in December from a year earlier. Reuters reported that “Gold imports hit the lowest level in at least two decades for the month as a rally in local prices near record high dampened demand.”

Gold price technical analysis: Daily chart

Technically, Gold price now looks to find a strong foothold above the $1,900 threshold.

Daily closing above that mark is critical to unleashing the further upside toward May 2022 high at $1,910. A fresh upswing toward the $1,950 psychological level cannot be ruled out should Gold buyers regain complete control.

The 14-day Relative Strength Index (RSI) is peeping into the overbought territory, suggesting that there is enough room to the upside before a sustained correction kicks in.

The 50-Daily Moving Average (DMA) and 200DMA Golden Cross also adds credence to the bullish potential in Gold price.

On the flip side, failure to yield a weekly close above the $1,900  level could put Thursday’s low at $1,872 under threat.   

Fresh weakness in Gold price could prompt sellers to target the $1,850 psychological level going forward.