Update: Gold reversed an early North American session dip to the $1,882 area and refreshed daily tops in the last hour. The downtick followed the release of stronger PCE Price Index data, which showed that the Fed’s preferred inflation gauge (Core PCE Price Index) jumped 3.1% YoY in April. The reading marked the highest level since 1994 and validated the higher inflation narrative.

This, in turn, fueled speculations that the Fed might be forced to tighten its monetary policy sooner rather than later. That said, the markets were braced for something worse. This was evident from a rather muted reaction in the US fixed income market, which assisted the non-yielding gold to attract some dip-buying at lower levels and climb back closer to the $1,900 mark.

Meanwhile, the upside is likely to remain capped, at least for the time being, amid an extended rally in the global equity markets. The already upbeat market mood got an additional boost after the New York Times reported on Thursday that US President Joe Biden will announce a $6 trillion budget for the fiscal year 2022. This, along with a broad-based US dollar strength, acted as a headwind for dollar-denominated commodities, including gold, and held bulls from placing aggressive bets.

Hence, it will be prudent to wait for some follow-through buying before traders start positioning for an extension of the recent strong positive momentum witnessed over the past two months or so. In this, regards, the $1,912-13 region, or multi-month tops should act as a key pivotal point for short-term traders and help determine the near-term trajectory for gold.

Update: Gold price is holding the lower ground near $1890, having tested Thursday’s low of $1888, as the US dollar remains firmer amid higher Treasury yields. Hopes for a bigger-than-expected US stimulus package continue to keep the global stocks in a sweet spot, with President Joe Biden aiming for $6 trillion in spending plans ahead of the budget release later on Friday. Gold traders also eagerly await the release of the Fed’s preferred inflation gauge, the PCE Price Index for the next direction in prices. Strong US Core PCE inflation figures could reinforce the Fed’s tapering expectations, boosting the yields at the expense of gold.

Read: Gold Price Forecast: XAU/USD at crossroads, US PCE inflation holds the key

Gold (XAU/USD) justifies the double whammy of uncertainty over US inflation and stimulus by printing a three-day losing streak, down 0.20% intraday around $1,890 ahead of Friday’s European session. Market’s cautious sentiment back the US Treasury yields,  which in turn weigh on the gold prices by the press time, despite the latest pullback from $1,889.

Test time for Biden, Fedspeak…

US President Joe Biden is ready to take the bold move of announcing a $6.0 trillion budget despite struggling to pass the $1.7 trillion spending plans, signaled by the New York Times (NYT). In doing so, Biden aims to lead the global economic recovery while staying ready to ignore the record budget, at least for now. However, Republicans pour cold water on his face while presenting a $1.00 trillion counteroffer. Hence, Today’s budget announcement, followed by a political drama will be entertaining for the markets as Biden’s rejection of the $1.0 trillion offer, also trimming the $6.0 trillion proposal only a bit, could propel risk sentiment and gold prices.

On the other hand, US Personal Consumption Expenditure (PCE) Price Index for April will also be the key amid the current reflation chatters. While the headline figure is no doubt important, gold traders will keep their eyes on the Core PCE Price Index due to its status as the Fed’s preferred gauge of inflation.

Forecasts suggest, the headline number to ease from 2.3% to 2.2% but the Core reading, the key one, is expected to jump from 1.8% to 2.9%, which in turn could keep the reflation fears on the table and put a safe-haven bid under the US dollar. The same should weigh on the gold prices afterward.

Read: US PCE inflation preview: Gold remains key asset to watch

It should be noted that US Treasury Secretary, also the ex-Fed Boss, Janet Yellen joined her old pals while suggesting the inflation pressure being transitory, also rejecting the tapering concerns. Though traders aren’t convinced and hence they keep the US Treasury yields up for the second consecutive day by the press time, which in turn drags the gold prices below $1,900.

Moving on, gold traders will have to keep their eyes on the inflation outcome, up for publishing at 12:30 PM GMT, as well as changes in the stimulus figures during the budget announcement, anticipated today, to forecast near-term moves of the commodity. In doing so, US Treasury yields could work as a strong catalyst.

Technical analysis

A clear downside break of the two-week-old rising trend line directs gold sellers towards another important support line close to $1,868. However, a 10-day SMA level near $1,882 can act as immediate support.

It’s worth noting that a bearish impulse below $1,868 will make the gold prices vulnerable to decline towards $1,845 support convergence, including 21-day SMA and early May tops.

On the contrary, corrective pullback beyond the support-turned-resistance line near $1,897 will have to provide a daily closing above $1,900 to keep the gold buyers hopeful.

Should the market optimism for gold stay intact past $1,900, the $1,907 and the latest high around $1,914 can test the bulls before directing them to the yearly top surrounding $1,960.

To sum up, gold witnesses a pullback towards the short-term key support line but the bears aren’t allowed a free pass.

Gold: Daily chart

Trend: Further weakness expected

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