Forecast for the Gold Price: XAU/USD bulls require confirmation from $1,902 and US inflation projections

Gold price (XAU/USD) is stable at $1,900 as bulls take a breather near the eight-month high early Friday morning, following the US inflation-inspired advance. In doing so, gold also reflects the market's skepticism ahead of additional data on US inflation conditions and consumer morale. In addition, recent concerns regarding US-China relations present additional obstacles for XAU/USD buyers.

According to anonymous sources cited by Reuters, the White House will discuss the recent ban on exports of chip-making gear to China during planned trips with Japanese and Dutch officials. The story also mentions that the White House Officials will not result in "immediate" commitments from China and Russia to implement comparable restrictions. The news renews the geopolitical conflict between the United States and China and supports the price of gold.

In a similar vein, the atmosphere before to China's trade data for December and the initial readings of the US Michigan Consumer Sentiment Index (CSI) for January will be crucial for short-term direction. In addition, the US 5-year Consumer Inflation Expectations will be crucial.

Even though Wall Street closed with gains, S&P 500 Futures remain hesitant and 10-year US Treasury rates lick their wounds near 3.46 percent as of press time.

On Thursday, the US CPI matched predictions for December at 6.5% YoY, compared to 7.1% before. Moreover, CPI excluding food and energy confirmed the market consensus of 5.7% YoY, compared to previous readings of 6.0%. Notable is the fact that the CPI MoM marked its first negative result since June 2020 with a -0.1% figure for the specified month, compared to the 0.0% anticipated and 0.1% prior figure.

Following the release of the US CPI, the Fed Fund Futures pegged to the policy rate implied a nearly 100 percent possibility of a 0.25 basis point (bps) Fed rate hike in February, but the odds favoring a 50 basis point (bps) rate hike in the same month fell to 8.0%.

Patrick Harker, president of the Federal Reserve Bank of Philadelphia, was the first to signal easy rate hikes after the US CPI, which weighed on the US Dollar. Thomas Barkin, president of the Federal Reserve Bank of Richmond, stated in the same vein that it "makes sense" for the Fed to steer more cautiously in its efforts to reduce inflation. However, the president of the Federal Reserve Bank of St. Louis, James Bullard, stated that the most likely scenario is for inflation to remain above 2%, therefore the policy rate will need to be elevated for a longer period of time.

In the future, expected growth in China's trade reports for December should benefit gold purchasers, while expected improvement in US consumer confidence measures could test the XAU/upward USD's potential. Notably, the US 5-year Consumer Inflation Expectations will be essential to monitor.