XAU/USD Bids Below $1,750 on Higher Expectations for US Inflation
- The price of gold is hovering below 1,750.00 as the odds of a price rally support the greenback.
- The combination of lower wages and higher inflation rates will lead to a severe drop in aggregate demand.
- Consolidation is expected as the RSI is hovering in the 40.00-60.00 range.
The price of gold (XAU/USD) is showing moves back and forth in a tight range from $1,742.93 to $1,744.62 during the Asian session. The precious metal is trading below the round resistance of $1,750.00 as market participants expect price pressures to accelerate.
Gold prices could face some serious heat as the higher inflation release from the US Bureau of Labor Statistics will strengthen the greenback. According to market consensus, the US consumer price index (CPI) is up 8.7% from the previous estimate of 8.6%. This will force the Federal Reserve (Fed) to make a consecutive 75 basis point (bp) interest rate hike.
However, the inflation rate in conjunction with lower average hourly earnings does not paint a rosy picture for the greenback. Soaring price pressures must be offset by higher incomes, and stagnant wage rates are hurting household paychecks. This can have a significant impact on aggregate demand, as lower value paychecks will lead to lower consumption and savings for households.
Gold technical analysis
On an hourly timescale, gold prices turned sideways in a range of $1,730.73-$1,752.49 after a downward move. The 20-period exponential moving average (EMA) at $1,742.35 straddles prices for the precious metal. Meanwhile, the Relative Strength Index (RSI) (14) is hovering between 40.00 and 60.00, adding to the chances of consolidation ahead.