Gold price is firm in Tokyo as the focus stays on the Federal Reserve later today and following the US inflation report that gave something for both the bears and bulls. At the time of writing, XAU/USD is trading higher by some 0.13% and has risen from a low of $1,942.31 to reach a high of $1,946.89 so far.

The yellow metal gained overnight following the fall in US inflation. On Tuesday, data showed that the US Consumer Price Index edged up 0.1% last month after increasing 0.4% in April, core CPI increased 0.4% in May, rising by the same margin for the third straight month.

The US Dollar took a disliking to the data initially, however, the Greenback pared back initial knee-jerk losses due to the core. Investors are of the mind that the core is still too high to be compatible with the Fed's 2% inflation target, thus there are still chances that the FOMC will justify another 25-bp rise at the outcome of the FOMC meeting. Additionally, Gold price gains were given up amid concerns that any pause from the Fed is likely to be short-lived, with the possibility the central bank remains hawkish.

Analysts at TD Securities offered three scenarios as follows:

Base case:

Fed delivers a 25bp rate hike, without fully closing the door to additional rate increases. While the FOMC will likely continue to acknowledge the more uncertain economic environment, especially for credit conditions, it will also emphasize that disinflation has been slower than expected and that economic activity remains resilient.

Hawkish:

Fed delivers a 25bp rate hike, but also commits to additional rate increases as the data has evolved firmer than expected. The statement will also emphasize that credit tightening does not appear to be outsized whereas inflation dynamics remain notably out of sync with the mandate.

Dovish:

Fed skips a rate increase but signals that further hikes are possible. While economic activity indicators have yet to suggest the Fed is on a clear path to 2% inflation, they can afford to gather more data given the accumulation of rate increases and as the risks to the outlook have become more two-sided