The US CPI report could affect gold prices through dollar dynamics

Gold prices peaked at fresh three-month highs around $1,845 earlier in the week before losing some upside momentum as traders refrained from challenging the 200-DMA that arrives at $1,850. On Wednesday, the precious metal turned marginally negative as dollar demand has reemerged somehow while risk sentiment has improved following broad-based sell-off in global stock markets seen yesterday. 

Despite the bullion is losing shine, the prices manage to stay afloat so far while keeping above the $1,800 figure. The XAUUSD pair was last seen trading in the $1,833 area, with intraday highs coming at $1,837. Later in the day, the US CPI report could affect gold prices through dollar dynamics. Any disappointment would cool down inflation concerns and Federal Reserve’s tightening expectations. In this scenario, a new burst of demand for gold could be expected while the greenback would slide across the board.

In part, the yellow metal is now falling from a three-month high due to higher bond yields. US Treasury yields derived support from inflation concerns along with the deteriorating health crisis in India and Japan. Benchmark US 10-year Treasury yields rose for a third straight day on Wednesday. Meanwhile, the dollar index was little changed at 90.20, after touching a fresh two-month low of 89.97 earlier.

In the immediate term, the bullion is expected to trade sideways in a limited range. However, short-term volatility spikes are possible in the context of the upcoming US inflation report. The immediate support is expected at $1,825, followed by $1,815 and the $1,800 psychological figure. On the upside, the nearest upside barrier arrives at $1,840 while the key target for bulls is represented by the mentioned 200-day simple moving average. A decisive break above this hurdle would improve the technical outlook substantially.


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