After a sustained downturn in the spot price for gold (XAUUSD) on aggressive monetary policy from the Federal Reserve, the market is starting to turn, as a dovish repricing of expectations supports the non-yielding precious metal. Could we be on the brink of a long-awaited trend reversal, or is it merely a temporary correction on profit-taking? The US CPI data may have some clues to the much-debated answer.  

On Wednesday, the US will release its highly anticipated inflation print. The consensus is for year-on-year inflation to contract significantly from 4% to 3.1%. Similarly, yearly core inflation is forecasted to moderate from 5.3% to 5%. If the expectations play out, it could support the current sentiment that the Federal Reserve is nearing the end of its rate hike cycle, which is bullish for the spot price. However, with the CME FedWatch Tool still assigning a 92% probability of a rate hike in July, downside risk remains present, where sticky inflation could trigger a larger selloff in gold. 

Technical 

On the 1D chart, the bulls have embarked on their fourth consecutive day in the green, threatening a sustainable breakout from the falling wedge, as support was found at $1,902.53 per ounce, the 61.8% Fibonacci golden ratio from the early May peak.  

If the inflation print is dovish, the breakout could be confirmed with a push toward the 50-day moving average at $1,956.93 per ounce before meeting resistance at $1,959.46 per ounce. Sustained upside in the longer term could then lead the bulls toward higher resistance at $1,977.67 per ounce. 

However, an upside surprise in inflation could be the boost the bears need to correct the recent reversal, which could result in a breakdown of the Fibonacci midpoint at $1,931.07 per ounce before retesting the breakout level of the wedge at $1,912.56 per ounce. From there, a movement back into the wedge could shed more light on support at $1,902.53 and $1,881.65 per ounce in the upcoming sessions. 

Summary 

While the bulls are making progress in sustainably breaking the falling wedge, confirmation from a soft inflation print could be needed to trigger the break toward $1,956.93 and $1,959.46 per ounce. However, a sticky print could result in a correction toward $1,912.56 per ounce. 

Sources: Koyfin, Tradingview