XAU/USD down but not down while 21-day SMA holds

• The gold price is holding on to Friday’s rebound near $2,500 as the US CPI week begins.
• The US dollar is watching US Treasury yields rise amid a modest recovery in risk.
• Gold price remains bound between two key barriers, but upbeat RSI keeps buyers hopeful.

The price of gold is trading on the front foot just above the $2,500 mark on Monday morning, consolidating Friday’s late rally. The price of gold is holding in a familiar range as traders brace for next week’s US consumer price index (CPI) data to confirm the size of the Federal Reserve’s (Fed) interest rate cut next week.

Gold price is biding its time, supported by favorable Fed bets

The price of gold is clinging to the critical near-term daily support level, now at $2,498, finding support from a risk-averse market environment, even as US stock futures rebounded in early trade.

China’s weaker-than-expected inflation data raised concerns about demand among the world’s top consumer, fueling speculation that Chinese authorities may implement more stimulus measures to boost the economic outlook, supporting the underperforming gold price. China’s inflation rate rose 0.6% in August over the year, lower than the 0.7% estimate. On a monthly basis, the CPI rose by 0.4%, below the 0.5% expected.

Increased bets for an excessive Fed rate cut this month are helping to maintain the bullish outlook for gold prices from a broader perspective. However, gold’s further recovery could be capped as US Treasury bond yields edged up modestly on the back of improving US stock futures, providing another step for the US dollar’s (USD) turnaround.

The dollar rebounded late on Friday after hitting a fresh eight-day low against its main rivals in an immediate reaction to the disappointing US labor market report. U.S. nonfarm payrolls rose 142,000, missing an expected gain of 160,000. On the other hand, the unemployment rate fell to 4.2%, in line with expectations.

Disappointing US employment data rekindled concerns about a possible economic recession, denting risk assets such as Wall Street indexes. The sell-off in US stocks triggered haven demand for the Greenback, allowing it to begin a late rally.

Risk-off sentiment fueled demand for U.S. government bonds, weighing heavily on U.S. Treasury yields on Friday, helping to cushion the fall in gold prices.

Looking ahead, gold prices could extend their range until Wednesday when US inflation data is released. The data is likely to increase volatility around the US dollar and, in turn, the price of gold. US inflation data will be key to gauge the extent of the Fed’s future rate cut.

Gold Price Technical Analysis: Daily Chart

Heading into the new week, the short-term technical outlook continues to remain constructive as long as the gold price holds above the 21-day simple moving average (SMA), now at $2,498.

The 14-day Relative Strength Index (RSI) also bounces back above the 50 level, adding credence to gold’s bullish potential.

Recapturing the $2,500 level on a daily closing basis is essential for the gold price to consolidate its bullish trend. The next relevant barrier on the upside is seen at the record level of $2,532, above which the psychological level of $2,550 will come into play.

If gold price again faces rejection near the $2,530 supply area, the correction would require a daily close below the 21-day SMA at $2,498. A breach of the latter will challenge the previous week’s low of $2,472.

Below, sellers will need to break the symmetric triangular resistance turned support at $2,459 to initiate a sustained downtrend.