Gold futures (COMEX: GC) got driven deep into the ground after the US employment data release last week. However, the bulls started digging in search of an attractive entry point as the precious metal realized three straight days of gains. Now, in a consolidation between some key levels, US CPI data becomes the focus for future moves.

A steep bearish drop in the gold futures market at the back of a strengthening dollar opened the doors for some buy-side momentum to re-enter following the more dovish-than-expected speech by Fed chair Jerome Powell. With support from central banks that continued to boost demand for the metal and geopolitical tensions between US and China sparking the flight toward safe haven, gold recovered from the substantial drop. A consolidation has formed as traders await key inflation statistics to give them direction.

Technicals

Gold futures showed some solid bullish momentum early in the year. A breakout to the downside below the $1900 per ounce support level occurred at the back of expectations of a more hawkish Fed, pushing the futures below the 50-day moving average. Still, the market continued to provide support at $1875 per ounce. Now, the futures are consolidating between these two support levels. The US is set to report inflation statistics on Tuesday, which would filter through to the eventual decision by the Fed on their monetary policy stance as well as the market’s sentiment. We saw a sizeable directional price action move after the Non-Farm Payrolls report, and we may see something similar on Tuesday. Higher than consensus inflation statistics may prompt a more hawkish Fed, which could force a breakdown out of the $1875 per ounce support level. The futures may then seek support further down at $1860 per ounce. However, if inflation statistics indicate some respite for the economy, the futures could break out to the upside and test at $1900 per ounce, and if a breakout holds, the bulls could push further up to $1921,5 per ounce.

Summary

Upside may be limited for gold futures as the Fed made it clear that more rate hikes will follow as the battle against inflation continues. However, if inflation statistics turn sentiment, the bulls may enter and push the price above the $1900 support level. If the contrary occurs, a second leg of downside pressure may occur again, potentially driving the futures back below the $1875 per ounce level in search of support.

Sources: Koyfin, TradingView