Gold Price Forecast: XAU/USD Battered in the Aftermath of US CPI

Gold Price (XAU/USD) Outlook:

• Gold prices extend losses in US CPI aftermath as rate expectations rise

• XAU/USD slumps past prior psychological support now resistance at $1,850.

• USD remains resilient – retail sales rise, assisting in the higher probability of higher rates

Gold Prices Sink as Higher Rate Expectations Drive USD Strength

Gold prices have extended losses in the aftermath of US CPI data, placing additional pressure on the precious metal. With the release of Januarys inflation figures showing a slight reduction in Core CPI, price pressures remain elevated, renewing the potential for the Federal Reserve to continue to raise rates. Additionally, US retail sales have beaten estimates, supporting a stronger Dollar.

With the rate probabilities highlighting the projected rate hikes for the remainder of the 2023 FOMC meetings, only 0.64% expect interest rates to ease in December, while majority expect the Fed to continue hiking until the terminal rate rises to the range between 5 - 5.25%.

Source: CME Fedwatch Tool

As Fed speakers reconfirm their commitment to achieving price stability by driving inflation back to the target of 2%, the recent data suggested that higher interest rates may be necessary for a longer duration of time.

Because gold and silver are considered to be non-yielding assets, an uptick in the terminal rate to 5.25% does not bode well for the safe-haven metals.

In response to the adjustment in expectations, gold futures (GC1!) slumped, driving prices below the 50-day MA (moving average) holding as resistance at $1,863.

With a break of the bear flag on the four-hour chart assisting in fueling bearish momentum, pushing the RSI (relative strength index) toward oversold territory.

Gold Price Chart (GC1! Four-Hour)

Chart prepared by Tammy Da Costa using TradingView

As Gold futures erase an additional 1.00% in todays session, the recent decline has sent XAU/USD to another zone of technical support around the key psychological level of $1,850.

With mid-point of the 2022 move resting at $1,848.6, a break of $1,830 could provide an additional catalyst for price action.

Gold Price Sentiment

What does it mean for price action？

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Gold: Retail trader data shows 70.67% of traders are net-long with the ratio of traders long to short at 2.41 to 1. The number of traders net-long is 8.91% higher than yesterday and 6.34% higher from last week, while the number of traders net-short is 19.74% lower than yesterday and 18.66% lower from last week.

Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger Gold-bearish contrarian trading bias.