• Gold has pulled back from earlier highs in the $1850s in wake of hotter than forecast US CPI data.
• XAU/USD is for now being supported by its 200DMA in the mid-$1830s.
• But for how long the 200DMA can hold amid rising US yields and buoyant buck remains to be seen.

After rebounding from a test of its 200-Day Moving Average at $1835 during Asia Pacific trade to as high as the $1850s during the late European morning, spot gold (XAU/USD) prices have slipped up once again following hotter than expected US inflation data. Prices are back to trading in the low $1840s, after market participants upper their Fed tightening bets on the back of a larger than expected MoM in Core price pressures.

At current levels, XAU/USD still trade about 0.3% higher on the day, with demand ahead of the 200DMA for now remaining robust. But in wake of the US inflation data, US yields have turned sharply higher, with the 10-year back above 3.0% from the low 2.90s%, while and the DXY also bounced to the upper 103.00s. Both are eyeing a test of recent multi-year highs.

Against the backdrop of buoyant US yields (which represent a higher “opportunity cost” of holding non-yielding assets like gold) and a stronger US dollar (which makes USD-denominated commodities more expensive for international buyers, it feels like a matter of time under XAU/USD drops under its 200DMA.

That would open the door to a run lower towards the psychologically important $1800 level and a test of annual lows around $1780 just below it. Gold bulls will be hoping for fresh negative developments regarding Western sanctions on Russian energy exports (an EU embargo to be agreed soon?) and China lockdowns (Beijing and Shanghai are still struggling to contain infections) to spur safe-haven/inflation protection demand and avert a drop back under $1800.