Gold prices fell sharply on Tuesday as the U.S. dollar continued to strengthen despite the pullback seen in U.S. yields. XAU/USD fell to $1,835 an ounce, recording its lowest level in three months.
Still, comments from Federal Reserve Cleveland President Loretta Mester stating that a 75 bps rate hike is not out of the table “forever” and the risk-off mood helped to boost the greenback.
Meanwhile, investors’ focus turns to US Consumer Price Index figures that will be published on Wednesday. Market consensus point to an 8.1% annual rate in April, while excluding food and energy, inflation is expected to come at 6%.
If expectations are confirmed, inflation will indeed be lower than in March, supporting the prospects that the global inflationary pressure is already peaking. On the other hand, higher than expected readings could lift gold prices as investors seek to hedge against inflation.
From a technical perspective, XAU/USD holds a bearish short-term bias according to indicators in the daily chart. The RSI and the MACD are gaining bearish momentum below their midlines, while the price is threatening an ascending trendline from August 2021 lows that converge with the 200-day SMA at around $1,835, making this a critical support level.
A loss of this area would likely increase bearish pressure on the XAU/USD, sending the price to the next support level at the $1,800 mark. Below the latter, the next target is seen in the $1,780-50 zone. On the other hand, the yellow metal needs to regain the 100-day SMA at $1,883 to ease immediate pressure and attempt a recovery toward $1,900.