Gold price remains on the defensive amid repositioning ahead of US CPI data release

• The price of gold is down for the second day in a row, although the downside appears limited.
• A positive risk tone is seen undermining the haven metal ahead of the US CPI report.
• Geopolitical risks, bets for more Fed rate cuts and subdued USD demand to provide support.

The price of gold (XAU/USD) ended in the red on Tuesday as bulls opted to take some profits off the table following recent gains over the past three days and ahead of key US inflation data. Commodities remained under some selling pressure for a second straight day on Wednesday, although fears of a wider conflict in the Middle East and dovish expectations of the Federal Reserve (Fed) should help limit any further losses.

US macro data released on Tuesday suggested that inflation continues to moderate and support the outlook for deeper interest rate cuts by the Fed. This keeps US dollar (USD) bulls on the defensive near a one-week low and provides modest upside for the yellow metal without yield. That said, a generally positive risk tone could limit gains for safety XAU/USD and warrant caution for bullish bullish traders.

Daily Digest Market Movers: Gold price unlikely to witness any significant decline amid Middle East tensions, Fed rate cut bets

• The price of gold is trading modestly lower for a second day in a row on Wednesday, albeit lacking a follow-through and remaining within striking distance of the all-time high reached in July.
• A Hamas official said Tuesday that the group had decided not to participate in the talks because its leaders did not believe the Israeli government had negotiated in good faith.
• Iranian officials told Reuters that only a ceasefire agreement in Gaza would prevent Iran from retaliating directly against Israel for the assassination of Hamas leader Ismail Haniyeh on its soil.
• The development raises the risk of a wider Middle East war and should act as a tailwind for the safe-haven metal amid bets for more interest rate cuts from the Federal Reserve.
• The US Bureau of Labor Statistics reported on Tuesday that the Producer Price Index (PPI) for final demand rose 2.2% on an annual basis in July, down from 2.7% the previous month.
• On a monthly basis, the PPI rose 0.1%, while the core PPI (which excludes volatile food and energy components) missed estimates and was flat during the reported month.
• The softer data provided more evidence of cooling inflation and opened the door for the Fed to begin its policy easing cycle, triggering a further decline in US Treasury yields.
• Atlanta Fed President Raphael Bostic reiterated on Tuesday that he would likely be ready to taper by the end of the year, although he wants to see a bit more data before backing the move.
• The US dollar is near its lowest level in over a week and could further benefit XAU/USD as the focus now shifts to the US Consumer Price Index (CPI).
• Headline CPI is expected to fall from a 3.0% y/y rate to 2.9% in July, and core CPI is seen at 3.2%, compared to June’s 3.3% increase .
• A weaker reading will further raise bets for a 50 basis point Fed rate cut in September and hurt the greenback, paving the way for further gains in the non-yielding yellow metal.

Technical analysis: Gold price looks poised to break record high and climb further towards $2,500

From a technical perspective, the recent rise in 50-day simple moving average (SMA) support and positive oscillators on the daily chart favor bullish traders. Therefore, any significant slippage could still be seen as a buying opportunity and remains limited. The price of gold looks ready to retest the record level around the $2,483-2,484 area and aims to conquer the psychological $2,500 threshold. Sustained strength beyond the latter will mark another breakout through a wider trading range held over the past month and set the stage for another near-term appreciation move.

On the other hand, the $2,450-$2,448 resistance now appears to be protecting the immediate downside, below which the gold price could slide back to the weekly low around the $2,424-$2,423 region reached on Monday. The next relevant support is fixed near the $2,412-2,410 area before the $2,400 round figure mark. Failure to defend the mentioned support levels could leave XAU/USD vulnerable to challenging the 50-day simple moving average (SMA) support near the $2,378-2,379 region. Some further selling could change the trend in favor of bear traders and expose the 100-day SMA support, currently near the $2,358-2,357 area. This is closely followed by the late July low around the $2,353-$2,352 area, which, if broken, should open the way for deeper losses.