Gold Price Forecast: XAU/USD grinds within bearish set-up ahead of Federal Reserve’s favorite inflation gauge

• Gold price picks up bids to pare recent losses after refreshing 2023 low.
• Short-term bearish channel, downbeat technical details keep XAU/USD sellers hopeful.
• Mixed geopolitical, trade news join yields to underpin corrective bounce.
• Gold traders brace for US Core PCE Price Index for January.

Gold price (XAU/USD) licks its wounds near $1,825 amid Friday’s sluggish start, after refreshing the yearly low during a four-day downtrend in the last. In doing so, the yellow metal seems to cheer a retreat in the United States Treasury bond yields and the US Dollar while bracing for the Federal Reserve’s (Fed) preferred inflation gauge.

Gold price recover on softer US Treasury bond yields

Although the fears of recession and higher Federal Reserve (Fed) rates are well known, the US benchmark Treasury bond yields remain pressured in the last three consecutive days. That said, the 10-year Treasury bond yields mark a three-day downtrend near 3.88% by the press time, following a run-up to refresh a three-month high. The US Dollar Index (DXY) seesaws around a seven-week high while proving a two-day uptrend near 104.60 by the press time.

It should be noted that the absence of a fresh boost to the hawkish Fed concerns, other than what’s already known to the markets, seemed to have triggered the latest retreat in the US Treasury bond yield and the US Dollar, especially ahead of the key US inflation data. The same join the market’s preparation for the key US inflation data to underpin the Gold price recovery from a multi-day low.

“Fed funds futures are priced for 25 basis-point (bp) hikes over the next three meetings, with a peak rate of 5.36% hitting in July,” said Reuters, versus 5.10% peak rate signaled by the Fed during the latest monetary policy meeting.

US data favors XAU/USD bears

Although the market’s pricing in the Fed moves underpinned the Gold price recovery, upbeat US statistics weigh on the XAU/USD. That said, Thursday’s second reading of the US Gross Domestic Product Annualized, better known as Real GDP, eased to 2.7% for the fourth quarter (Q4) versus 2.9% first forecasts. However, the Personal Consumption Expenditure (PCE) Price and Core PCE for the said period rose to 3.7% and 4.3% QoQ versus 3.2% and 3.9% respective first estimations. Additionally, the Chicago Fed National Activity Index improved to 0.23 in January from -0.46 (revised), versus 0.03 analysts’ estimates. On the same line, Initial Jobless Claims also eased to 192K for the week ended on February 17 from 195K (revised) prior, compared to the 200K expected.

Mixed risk catalysts trouble Gold traders

While yields are against the Gold bears but not the US Dollar, the mixed geopolitical and trade headlines seem to confuse the XAU/USD traders and add the importance of the upcoming US data for clear directions.

On Thursday, US Treasury Secretary Janet Yellen signaled that the US will resume discussions with China on economic issues 'at an appropriate time' whereas China’s Commerce Ministry urged the US to create good conditions for trade with China. The news managed to trigger cautious optimism during the late hours of the previous day.

On the same line were statements from China’s commerce ministry spokesperson who said, the recovery momentum in the country’s consumer market was strong in January while also adding, “The government will take more measures to revive and expand consumption.”

However, the latest headlines suggesting China’s readiness to supply combat drones to Russia and the US Senators’ push to halt Chinese carriers overflying Russia on US flights seem to renew the market fears and put a floor under the US Dollar, challenging the Gold buyers in turn.

Amid these plays, the market sentiment remains dicey and the S&P 500 Futures print mild losses even as Wall Street closed with minor gains.

As a result, today’s US Personal Consumption Expenditures (PCE) Price Index data for January becomes the key for watching. Forecasts suggest that the Fed’s favorite inflation gauge could have risen by 4.9% YoY in January, versus 5% prior. Further, the more relevant Core PCE Price Index, known as Fed’s favorite inflation gauge, is likely eased to 4.3% YoY, compared 4.4% prior.

Also read: US PCE Inflation Preview: Can the US Dollar turn bullish for good?

Gold price technical analysis

Gold price holds onto a three-week-old bearish trajectory, portrayed by a descending trend channel, even as the metal recently bounced off a multi-day low.

That said, bearish signals from the Moving Average Convergence and Divergence (MACD) indicator join the absence of an oversold Relative Strength Index (RSI) line, placed at 14, to keep XAU/USD sellers hopeful.

As a result, the precious metal’s further decline to the 78.6% Fibonacci retracement of mid-December 2022 to early February upside, around $1,813, appears imminent. However, the stated channel bearish channel’s lower line, close to the $1,800 threshold by the press time, could challenge the Gold sellers afterward.

In a case where the Gold price remains weak past $1,800, the December 2022 bottom surrounding $1,773 could lure the bears.

On the contrary, the 50-bar Simple Moving Average (SMA) adds strength to the aforementioned bearish channel’s top line of around $1,840, making it the short-term key hurdle for the Gold buyers to cross.

Even if the XAU/USD rises past $1,840, the 61.8% and 50% Fibonacci retracement levels around $1,845 and $1,868 in that order could challenge the bulls before giving them control.

Overall, Gold price is likely to remain weak for the short term even if the downside room appears limited.

Gold price: Four-hour chart

Trend: Further downside expected