Gold Price Forecast: XAU/USD Edges Higher Amid Weaker US Dollar, Lacks Follow-Through

Gold price struggles to capitalize on the previous day’s late rebound from the $1,969 area, or over a two-week low, and seesaws between tepid gains/minor losses through the first half of the European session on Thursday. The XAU/USD is currently placed just below the $2,000 psychological mark, nearly unchanged for the day, and is influenced by a combination of diverging forces.

Modest US Dollar Weakness Lends Support To Gold Price

The US Treasury bond yields extend the overnight pullback from a nearly one-month high and exert some downward pressure on the US Dollar (USD). This, in turn, is seen as a critical factor lending some support to the US Dollar-denominated Gold price. Apart from this, a fresh wave of global risk-aversion traders further benefits the safe-haven precious metal. That said, the prospects for further policy tightening by the Federal Reserve (Fed) act as a tailwind for the USD and cap the upside for the non-yielding XAU/USD.

Bets For More Fed Rate Hikes Cap Gains For XAU/USD

The markets seem convinced that the Fed will continue raising interest rates to combat high inflation and have fully priced in a 25 basis point (bps) lift-off in May. Moreover, the Fed funds futures indicate a slight chance of another rate hike at the June Federal Open Market Committee (FOMC) meeting. The recent hawkish comments by Fed officials reaffirmed the bets. On Wednesday, New York Fed President John Williams said that inflation is still at problematic levels and the US central bank will act to lower it.

Furthermore, the Fed’s Beige Book showed that inflation in the United States (US) continued to run relatively high. Adding to this, the incoming US macro data pointed to a resilient economy. Further, they fueled concerns that the Fed may have more work to do to contain inflation amid easing fears of a full-blown banking crisis. This should help limit the downside for the US Treasury bond yields and attract fresh USD buying at lower levels, suggesting that the path of least resistance for the Gold price remains to the downside.

Traders Now Eye US Macro Data For Short-Term Opportunities

Market participants now look to the US economic docket, featuring the usual Weekly Initial Jobless Claim release, the Philly Fed Manufacturing Index and Existing Home Sales data later during the early North American session. This, along with speeches by influential FOMC members, US bond yields, and broader risk sentiment, will drive the USD demand and provide some impetus to Gold prices. Traders will take cues from the broader risk sentiment to grab short-term opportunities around the metal.

Gold Price Technical Outlook

From a technical perspective, the overnight breakdown through the $1,980 horizontal support was a new trigger for bearish traders. That said, the lack of follow-through selling and the subsequent recovery warrant caution before positioning for any further depreciating move. Meanwhile, any further move might confront resistance near the $2,012-$2,015 zone. A sustained strength beyond might trigger a fresh bout of a short-covering and lift Gold price beyond the $2,020 intermediate hurdle, towards the $2,040 horizontal resistance en route to the YTD peak, around the $2,047-$2,049 region.

Conversely, the $1,980 area, followed by the overnight swing low around the $1,969 region, now seems to be immediate support. Given that those oscillators on the daily chart have just started drifting in the negative territory, some follow-through selling should pave the way for extending the recent retracement slide from a one-year high. The Gold price might then slide towards testing the next relevant support near the $1,956-$1,955 area before eventually dropping to the monthly low around the $1,950 region.

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