XAU/USD down but not down, focus shifts to US inflation data

• Gold retreated from six-day highs as traders lock in gains ahead of key US inflation data.
• US dollar stamps fall on anxiety ahead of US CPI and geopolitical risks in the Middle East.
• Buy-the-dips in gold price as 21-day SMA holds and daily RSI remains bullish on daily chart.

The price of gold retreated from near a one-week high of $2,473 set on Monday as traders locked in gains ahead of key US inflation reports. US producer price index (PPI) data will draw attention later on Tuesday, while US consumer price index (CPI) inflation data will come out on Wednesday.

Iran-Israel escalation and US inflation data on tap

Markets are eagerly awaiting high-impact US inflation data to gauge whether a big interest rate hike by the US Federal Reserve (Fed) is on track, especially after the weak jobs report sparked fears of recession and stepped up aggressive Fed. low rate bets.

Markets are now pricing in about a 50 percent chance of a 50 bps rate cut in September by the Fed, according to CME Group’s FedWatch tool. Meanwhile, the headline annual CPI is set to rise 2.9% in July after rising 3.0% in June. Meanwhile, core inflation is expected to ease slightly to 3.2% year-on-year in July, from June’s 3.3% print.

That said, the US headline annual PPI is seen rising 2.3% in July after reporting a 2.6% increase in June. Core PPI inflation is set to fall from 3.0% year-on-year in June to 2.7% in July. Progress on disinflation is likely to pave the way for notable easing by the Fed, which could bode well for the price of non-interest-bearing gold.

Amid increased Fed expectations, US Treasury bond yields remain in the red, also hit by heightened tensions in the Middle East, which are driving risk-off flows to safe-haven assets such as US government bonds and gold prices.

The traditional safe bet, the price of gold, jumped more than 1% on risk aversion due to heightened tensions in the Middle East. White House spokesman John Kirby said late Monday that Iran could launch a “significant” attack on Israel this week and that the timing could affect Gaza cease-fire talks, currently scheduled to resume on August 15.

“The Israeli military and Lebanon’s Hezbollah militant group have traded strikes since the current war in Gaza began, but tensions have escalated since an Israeli strike in a Beirut suburb killed a top Hezbollah commander last month. Hezbollah has vowed to retaliate,” according to CNBC News.

On Sunday, Axios reported that the Israeli intelligence community is being put on high alert because it is believed that Iran has decided to attack Israel directly and could do so within days.

Looking ahead, geopolitical developments between Israel and Iran-backed militant groups Hamas and Hezbollah will continue to drive sentiment and influence gold price value. US inflation data and Fed policymakers’ speeches will also be closely watched.

Gold Price Technical Analysis: Daily Chart

As seen on the daily chart, the price of gold accelerated its recovery mode and tested the upper limit of the symmetrical triangle formation, then fixed at $2,473.

However, gold buyers are unable to secure a daily candlestick close above this level, triggering another pullback from near a weekly high.

The key leading indicator, the 14-day Relative Strength Index (RSI) has turned south but remains above the 50 level, suggesting that any pullback in the gold price is likely to be bought as long as the 21-day simple moving average (SMA) . ) at $2,421 holds.

However, if the pullback extends, the 21-day SMA could give way to further downside, with immediate support then seen at $2,380, where the lower boundary of the triangle and the 50-day SMA converge.

Before this demand zone, the $2,400 threshold could save the buyers.

Alternatively, acceptance above the aforementioned triangular resistance, now at $2,475, is key to reaching the record high of $2,484, above which a test of the $2,500 threshold will be inevitable.