• Gold oscillated in a narrow band around the $1,850 area through the first half of the European session.
• Aggressive Fed rate hike bets pushed the USD to a two-decade higher and capped the commodity.
• Retreating US bond yields and the global flight to safety helped limit losses for the safe-haven metal.

Gold struggled to capitalize on the overnight post-US CPI gains and witnessed subdued/range-bound price action on Thursday. The XAUUSD seesawed between tepid gains/minor losses through the first half of the European session and was last seen trading in neutral territory, around the $1.850 region.

The latest US consumer inflation readings came in higher than expected and reinforced market bets for a more aggressive policy tightening by the Fed. In fact, money market futures are now pricing in an 81% chance of a jumbo 75 bps rate hike in June amid concerns that China's zero-covid policy and the war in Ukraine would continue to push consumer prices higher. This, in turn, pushed the US dollar to its highest level in nearly two-decade and dented demand for the dollar-denominated gold.

The prospects for rapid interest rate hikes in the US, along with strict COVID-19 lockdowns in China, have been fueling concerns about softening global growth and a possible recession. This continued weighing on investors' sentiment and was evident from an extended sell-off in the equity markets, which extended some support to the safe-haven gold. The global flight to safety, coupled with signs that inflationary pressures in the world's biggest economy are peaking, dragged the US Treasury bond yields higher. This was seen as another factor that helped limit any deeper for the non-yielding yellow metal.

Even from a technical perspective, spot prices showed some resilience below the very important 200-day SMA, which further held back bearish traders from placing aggressive bets. Market participants now look forward to the US Producer Price Index (PPI), due for release later during the early North American session. The data, along with the US bond yields, will influence the USD price dynamics and provide some impetus to gold. Traders will further take cues from the broader market risk sentiment to grab some short-term opportunities.

Technical levels to watch