Gold spot (XAUUSD) experienced three consecutive days of contraction as it continues to face increasing pressure from a strong US dollar and higher treasury yields. The precious metal is known for its ability to hedge against inflation, but with interest rates rising, the non-interest metal is losing its attraction as traders continue to close out their positions.

After a steep drop at the back of the non-farm payroll report, the gold spot price has failed to gain meaningful momentum to drive a recovery. Traders are looking forward to the US CPI data as the next main event that could drive the price action. Volume for the metal has subdued in recent hours as traders are looking to avoid getting trapped into interacting before a major catalytic event that could spark volatile movements.

Technicals

A bull trap was seen in the market for gold as buyers got trapped buying into the upside that got squandered following the non-farm payroll report. After the breakout to the downside, further hawkish comments from Fed officials and higher treasury yields have continued to pressure gold and prevent it from breaking out into a recovery. Now, the market is consolidating in anticipation of another major event. Lower CPI statistics could motivate the Fed to be more dovish in their next monetary policy decision, which could provide a tailwind for gold to break out of consolidation and retest resistance at $1882,14 per ounce. Gold has recently struggled to push past the $1900 per ounce level, and a breakout above the resistance of $1882,14 per ounce could bring this major resistance at $1900 per ounce back into focus. However, suppose inflation is higher than consensus. In that case, a possible repeat of the employment statistics may occur in the gold market, putting downward pressure on the metal and shifting focus to $1849,54 per ounce and $1829,89 per ounce if the spot price breaks out of the lower consolidation level.

Summary

The US CPI statistics could affect the monetary policy decision the Fed has to make, which will trickle down into the market for gold. Higher inflation statistics could enforce further downside, and gold may look for support at $1849,54 and $1829,89 per ounce. Lower inflation may provide the momentum gold needs to spark a recovery to $1882,14 per ounce and possibly test the highly topical $1900 per ounce level.

Sources: Koyfin, TradingView, BusinessDay