As US inflation worsens the recession, the price of gold declines near a 16-month-old level of support

During Thursday's Asian session, the price of gold (XAUUSD) retreated to an intraday low of $1,727, erasing the previous day's recovery from an 11-month low. The market's worries about a recession and rising interest rates, not to mention the strength of the US dollar, may be related to the metal's decline.

The precious metal bounced back the day before from its annual low as markets struggled to process the US inflation figures and the conflicting reactions that followed. The Bank of Canada (BOC) rate rise of 100 basis points (bps) and the hawkish Fed comments, however, made room for the XAUUSD bears on Thursday.

On a yield curve inversion, the price of gold plunges

The important US Treasury yield curve, namely between the 2-year and 10-year Treasury coupons, is still inverted and reflects recessionary worries, which drag down the price of gold. However, the yield on the US 10-year Treasury note increased by four basis points (bps) to 2.95 percent at the latest, while the yield on the 2-year note increased to 3.18 percent as of the time of publication. With this, the yield curve inverts by about 23 basis points among the aforementioned important bond coupons, signaling market concerns about an impending economic slowdown.

Biden failed in his attempts to calm US inflation anxieties

After the US Consumer Price Index (CPI) for June soared to the highest level in 40 years to 9.1% YoY vs 8.8 percent predicted and 8.6 percent previous, US President Joe Biden used oil costs to question bearish. Nevertheless, the Core CPI, which excludes volatile food and energy costs, decreased from 6% to 5.9%, above experts' expectations of 5.8%. According to Reuters, in response to the US statistics, White House (WH) Economic Adviser Brian Deese told CNBC that the CPI data highlights the need for Congress to swiftly adopt legislation to boost semiconductor production in the US. However, US President Biden stated that because gas costs have decreased, CPI data is "out of data."

XAUUSD bears are also favored by the Bank of Canada

In contrast to the market consensus for a rate increase of 75 basis points (bps), the Bank of Canada (BOC) increased its policy rate by 100 bps to 2.5 percent in June. The Governing Council opted to front-load the route to raise interest rates because "the economy is obviously in excess demand, inflation is high and widening, and more firms and consumers expect high inflation to stay for longer," according to a BOC Statement.

Metal prices are sunk by the US Dollar Index

Inflation numbers that are at a four-decade high are justified by the US Dollar Index (DXY), which also weighs on the price of gold by reversing a two-day slump and rising 0.32 percent intraday around 108.40 at press time. The recent rise in the dollar index may also be related to worries about a downturn in the world economy and more pessimism about Europe.

Bears are favored by hawkish Fedspeak

While monitoring recent US inflation statistics that reached a 40-year high, Fed members lately supported the hawkish inclination of the market. According to the New York Times, San Francisco Federal Reserve Bank President Mary Daly recently stated that a 100bp boost is feasible but that a 75bp hike is more likely. Prior to that, Thomas Barkin, president of the Richmond Federal Reserve, expressed his support for higher rates at the previous meeting, while Loretta Mester, president of the Cleveland Federal Reserve, added, "The figures on CPI do not anticipate a rate rise in July any smaller than that in June."

Technical prognosis for gold prices

As it fails to prolong a corrective drop from an upward-sloping support line from March 2021, the price of gold pokes a bottom in late 2021. However, it should be noted that the oversold RSI circumstances put the XAUUSD bears under pressure.

Nevertheless, in addition to the aforementioned support line at $1,709, the $1,700 mark can serve as a downside filter to limit the precious metal's short-term falls.

The likelihood of seeing a south run towards the previous yearly low of $1,676 cannot be ruled out if the XAUUSD bears maintain control above $1,700.

On the other hand, recovery advances require confirmation from the March 2021 to March 2022 upward 78.6 percent Fibonacci retracement level, or around $1,760. Before that, a quick comeback may be constrained by the December 2021 low at $1,753. Gold buyers will look for confirmation from May's low of $1,786 before regaining control, even if the price climbs over $1,760.