Gold price pulls back from multi-week top, downside potential seems limited

• Gold price drifts lower and reverses a part of Thursday’s softer US CPI-inspired positive move.
• An uptick in the US bond yields revives the USD demand and exerts pressure on the XAU/USD.
• Rising September Fed rate cut bets should act as a tailwind for the metal and help limit losses.

Gold price (XAU/USD) rallied to the $2,424-2,425 area on Thursday, or its highest level since May 22 in reaction to another tame US inflation report, which boosted expectations that the Federal Reserve (Fed) will cut interest rates in September. That said, a modest rebound in the US Treasury bond yields helps revive the US Dollar (USD) demand and prompts some selling around the non-yielding yellow metal during the Asian session on Friday. Apart from this, the underlying bullish sentiment surrounding the equity markets turns out to be another factor driving flows away from the safe-haven precious metal. 

Gold price, for now, seems to have snapped a three-day winning streak, though any meaningful downfall still seems elusive in the wake of growing acceptance that the Fed will start its rate-cutting cycle sooner rather than later. Furthermore, geopolitical risks, political uncertainty in the US and Europe, along with concerns about a global economic slowdown, should continue to act as a tailwind for the XAU/USD. Traders now look forward to the release of the US Producer Price Index (PPI) and the University of Michigan Consumer Sentiment survey for a fresh impetus later during the North American session. 

Daily Digest Market Movers: Gold price might continue to draw support from Fed rate cut bets

• Gold price surged past the $2,400 mark on Thursday following the release of the softer-than-expected US consumer inflation figures, which lifted bets for a September interest rate cut by the Federal Reserve.
• The US Bureau of Labor Statistics (BLS) reported that the headline Consumer Price Index (CPI) dipped in June for the first time in more than four years and the yearly rate decelerated to 3% from 3.3% in May. 
• Meanwhile, the core CPI, which excludes volatile food and energy prices, was up 0.1% during the reported month and rose 3.3% YoY, also missing consensus estimates and the 3.4% increase registered in May. 
• Investors were quick to react and are now pricing in over a 90% chance that the Fed will lower borrowing costs at the September monetary policy meeting, as indicated by the CME Group's FedWatch Tool.
• Furthermore, the December 2024 fed funds rate futures contract implies that the US central bank will cut policy rates by 49 basis points (bps) toward the end of the year, up from 39 bps a day ago.
• San Francisco Fed President Mary Daly acknowledged improving inflation figures and said that the economy looks to be on a path where one or two rate cuts this year would be more or less appropriate.
• Separately, St. Louis Fed President Alberto Musalem noted that recession risks remain low, and the disinflation process is ongoing, though policymakers would like to see more progress.
• Meanwhile, the yield on the benchmark 10-year US government bond tumbled to its lowest level since March, dragging the US Dollar to a three-month trough and providing a strong boost to the yellow metal.
• This overshadowed the better-than-expected release of the US Initial Jobless Claims, which fell to 222K for the week ending July 6 as compared to expectations for a reading of 236K and the 239K previous.
• The XAU/USD, however, struggles to capitalize on the overnight strong move up amid a modest USD uptick during the Asian session on Friday, though the fundamental backdrop favors bullish traders.

Technical Analysis: Gold price could aim to retest all-time peak, around $2,450 touched in May

From a technical perspective, the overnight sustained breakout through the $2,400 mark was seen as a fresh trigger for bullish traders. Moreover, oscillators on the daily chart have been gaining positive traction and are still away from being in the overbought territory. This further validates the near-term positive outlook for the Gold price, suggesting that any meaningful slide might be seen as a buying opportunity and remain limited. 

Some follow-through selling below the $2.388-2.387 horizontal resistance breakpoint, now turned support, could drag the XAU/USD towards the $2,358 region with some intermediate support near the $2,372-2,371 area. On the flip side, the overnight swing high, around the $2,425 region now seems to act as an immediate hurdle, above which the Gold price is more likely to aim back towards challenging the all-time peak, around the $2,450 region touched in May.