The metal failed to capitalize on risk aversion in Asia, followed by negative dynamics in Europe
Gold prices surged on Tuesday as U.S. inflation was lower than expected. Consumer prices in August rose 0.3% over the previous month versus 0.4% expected. The bullion climbed to the $1,808 area where the 200-DMA capped gains. As a result, the precious metal retreated today, clinging to the $1,800 figure during the European hours.
The dollar is correcting lower on Wednesday, digesting the disappointing inflation data out of the United States. Still, the pressure is limited as it looks like weak figures failed to ease investor concerns about Federal Reserve policy tightening which may start before the end of the year.
Earlier today, investors were disappointed by weak economic data out of China, with retail sales, industrial output and fixed-asset investment all coming in lower than expected amid coronavirus outbreaks. However, gold prices failed to capitalize on risk aversion in Asia, followed by negative dynamics in Europe.
The bullion needs to hold above the $1,800 level on a daily closing basis in order to stay afloat and avoid another retreat in the coming days. Of note, this figure is now threnthened by the 20-day SMA, suggesting a decisive break above this area could add to upside momentum in the market.
However, as US inflation data failed to tame the tapering concerns despite easing in August, the dollar will likely remain strong and elevated as traders will continue to price in tightening ahead of the next Fed meeting due next week.
In other words, the upside potential in gold prices remains limited, with bearish risks persisting for the time being. If the yellow metal fails to stay above the mentioned 20-DMA in the near term, the $1,780 key support zone will come back into the market focus.