XAU/USD buyers try their luck again heading into the US inflation clash

• Gold price holds recent gains above $2,500 on US CPI inflation day.
• The US Dollar is chasing USD/JPY sell-off amid weak US Treasury yields and risk-off flows.
• Gold buyers are looking to retest record highs at $2,532 after defending the 21-day SMA. The daily RSI remains bullish.

The gold price is consolidating a two-day uptrend above $2,500 in Asian trade on Wednesday. Gold buyers are taking a breather, with the next directional move likely to be triggered by critical US consumer price index (CPI) data later on Wednesday.

Gold price risks big reaction to US CPI data

Gold traders stayed on the sidelines, refraining from placing new bets ahead of the US inflation test, which could confirm the size of the US Federal Reserve’s (Fed) interest rate cut next week. The data is key to determining the next direction of the gold price as it approaches the record high of $2,532 set on August 20.

The US CPI is seen rising 2.6% from a year ago in August, after posting a 2.9% increase in July. Core CPI inflation is expected to hold steady at 3.2% YoY over the same period. Meanwhile, the headline and core monthly CPI will rise by 0.2%, the same pace as before.

A positive surprise for the annual and monthly inflation readings could trigger a further rally in the US dollar at the expense of the gold price, washing away expectations of an exaggerated Fed rate cut. Conversely, a weaker-than-expected headline and annual CPI core data could revive bets for a 50 basis point (bps) Fed rate cut, slamming the US dollar (USD) while propelling gold prices to new life maxims.

Markets are currently pricing in a 33% chance of a 50bps rate cut, while the odds of a 25bps rate cut are 67%, CME Group’s FedWatch tool shows.

Ahead of the US CPI showdown, the gold price remains supported by renewed US dollar selling, thanks to USD/JPY’s steep sell-off. The Japanese yen climbed to fresh eight-month highs against the USD near 141.50 after dovish remarks from Bank of Japan (BoJ) board member Junko Nagakawa. The policymaker signaled the bank’s willingness to raise rates further, highlighting the policy divergence between the Fed and the BoJ.

Meanwhile, the first US presidential debate between former President Donald Trump and Democratic nominee Kamala Harris of Pennsylvania failed to have any significant impact on financial markets as investors traded cautiously and rushed to the safety of US government bonds. This has negatively affected US Treasury bond yields, allowing the price of gold to remain on top.

Gold Price Technical Analysis: Daily Chart

Nothing seems to have changed for the price of gold from a short-term technical perspective. Buyers continue to remain bullish as the price of gold managed to close above its 21-day simple moving average (SMA), now at $2,503, for the second day in a row on Tuesday.

The 14-day Relative Strength Index (RSI) is pointing higher again, well above the 50 level, justifying bullish potential.

Gold buyers are now eyeing a sustained breakout, the record high 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, a correction would follow, with a daily close below the 21-day SMA at $2,503 needed to cancel the near-term bullish outlook.

A breach of the latter will trigger the previous week’s low of $2,472, followed by symmetrical triangle resistance, turned into support at $2,462.