Gold Price Forecast: Soft US Inflation Data Has XAU/USD Eyeing Less Hawkish

Despite some weak data from the United States on Friday, the gold price is fighting to reverse its downtrend. The gold price has struggled to break through a key support level in the last couple of days, which could keep it from gaining momentum. The price has been tumbling since the end of February. However, it is still attractive for adding longs on pullbacks.

Inflation fears continue to plague the markets. Oil has risen around $8.0 on the session, which would typically weigh on gold demand. However, geopolitical tensions continue to weigh on investors’ sentiment. The outbreak of COVID-19 in China is also a concern. This could weaken fuel demand in China. It is also likely to weaken the commodity-linked Loonie.

Traders have also paid close attention to comments from central bankers. Minneapolis Fed Bank President Neel Kashkari said it was not clear how high to raise the policy rate to bring down inflation. But the Federal Reserve is expected to continue quantitative tightening. The Fed could also deliver another 0.50% rate hike.

However, XAU/USD pair remains below key resistance levels at 1,877 and 1,890. It is also trading near the bearish RSI. This is a bearish pattern, which indicates traders remain indecisive. The combination of these changes gives traders a stronger contrarian trading bias.

The gold price is bouncing off a weekly low. It was trading near the highest point of the year at $1,620. Gold has now been in a correction zone since late February. This means that gold may still face a bearish scenario if it does not break through its two moving averages. It is also important to monitor US PPI data for future inflation expectations. This data could help forecasters gauge if the inflation data is overcorrecting or not.

Earlier on Friday, the US Dollar Index was modestly higher. US retail sales were mixed. Retail sales rose 0.0% from the previous month, while the Retail Sales indicator was up 0.1%. However, US Prelim UoM Consumer Sentiment was better than expected. Traders will be closely monitoring Fedspeak on Friday. It will include comments from Christopher Waller, John Williams, and James Bullard.

The US economy continues to be strong. The unemployment rate is at 3.6%, which is considered full employment. Wage growth is still steady. However, analysts expect high inflation. This could keep the central bank on its toes. If inflation data proves to be strong, it could offset the economic data. The broader risk sentiment could also influence the dollar.

US bond yields have also gained some traction. The 10-year US T-bond yield rose more than 2% on Thursday, while German 10-year bund yields flirted with the 2.10% region. This adds to the uptick in the US dollar.

The US consumer sentiment index rose to a three-month high in early August. The index was mixed with inflation expectations. The core CPI was expected to drop to 0.3%. However, the headline CPI was expected to rise to 8.3%.