Gold price wilts as Oil shock puts CPI in Fed crosshairs

Gold (XAU/USD) registers losses of over 0.44% on Tuesday amid a light economic docket in the US, due to a narrative dominated by the US-Iran conflict, higher Oil prices and traders bracing for the release of US inflation reports, with the PPI expected on Thursday, followed by the next days CPI. At the time of writing, XAU/USD trades at $4,393.

Energy prices continued to climb as attacks in the Middle East sent West Texas Intermediate (WTI) up 1% to $92.10 per barrel. A scarce US economic docket on Tuesday and Wednesday keeps investors focused on US inflation data, which could prompt a repricing of short-term interest rates set by the Federal Reserve (Fed).

Last week‘s outstanding Nonfarm Payrolls report gave the green light to Fed Chair Kevin Warsh and company to increase rates. If July’s data – particularly the Consumer Price Index (CPI) expected at 0.4% MoM or 3.4% YoY, along with core figures seen at 0.2% MoM and 2.4% YoY – are exceeded, it opens the door for further tightening. This would push bullion prices lower, which tend to fare well in a lower-interest-rate environment.

Money markets have priced in a 63% chance of a 25-basis-point rate hike by the Fed at next week's meeting, according to Prime Terminal.

Alongside the release of US inflation data, traders would be keen to assess the status of the labor market, as the US Department of Labor will feature Initial Jobless Claims for the week ending September 5.

So far, Gold‘s fall has not been triggered by US bond yields or the Dollar. The US 10-year Treasury yield is flat at 4.788%. At the same time, the US Dollar Index (DXY), which measures the performance of the buck’s value against a basket of six currencies, is down 0.04% at 98.86.

Gold price extended its losses for the third straight day, approaching the 100-day Simple Moving Average (SMA) at $4,346, with the next target seen at $4,300 as the path of least resistance shifted downward in the near term.

The Relative Strength Index (RSI) currently leans downward after piercing the 50-neutral level, indicating further downside.

The first downside support level is at $4,300. A strong breakout below the figure could test the September 2 swing low at $4,282, followed by the 50-day SMA at $4,254. On further weakness, the next area of interest will be $4,200.

On the upside, once prices surpass $4,400, it opens the door to challenge the psychological $4,450, followed by $4,500. A breach of the latter will expose the 200-day SMA at $4,535. Breaking above this level could open the way to $4,600 and, eventually, to the daily high from August 25 at $4,697.