Gold Price Forecast: Rally hits pause near $4,440 with US CPI in focus

The price of gold (XAU/USD) slipped 0.26% during European trading on Tuesday, settling near $4,380 following its two-month high of $4,435 earlier in the day. This downturn was linked to oil prices surging as concerns grew over the reopening of the Strait of Hormuz, a critical passage for almost 20% of global energy supplies. Analysts at Danske Bank noted that Brent crude surged to $87/bbl amid waning hopes for a swift resolution to the US-Iran conflict and the ongoing deadlock in resolving the Strait of Hormuz issue.

Negotiations failed due to President Trump's insistence on war compensation claims, adding to market uncertainty. Rising oil prices also fueled global inflation expectations, potentially leading to interest rate hikes by major central banks. This scenario posed challenges for non-interest-bearing assets like gold. Financial markets were now eagerly awaiting the United States Consumer Price Index (CPI) data for July, to be released on Wednesday.

This data would play a crucial role in determining Federal Reserve interest rate expectations, as Chairman Kevin Warsh had previously expressed the committee's commitment to bringing inflation down to a 2% target. The CPI reading could either ease concerns about Fed Chair Kevin Warsh's dovish stance or potentially trigger a rate hike, thereby impacting longer-term interest rates and gold prices.

Gold was trading at around $4,377.89, maintaining a bullish outlook as it stayed above its 20-day exponential moving average ($4,174.76). The Relative Strength Index (RSI) of 66.40 indicated strong upward momentum but also signaled potential vulnerability to a pause or correction. On the downside, immediate support lay at the 20-day EMA ($4,174.76), the same level that had previously acted as resistance.

For gold to extend its rally towards the May 29 high of $4,595.34, a decisive break above the current intraday high of $4,435.40 was required. Historically, gold has been a reliable store of value and medium of exchange, often used as a hedge against inflation and currency depreciation. Central banks globally hold significant gold reserves, diversifying their portfolios to safeguard against economic instability.