Gold Price Forecast: XAU/USD needs weekly close above 21-DMA for a meaningful recovery

• Gold price clings to Thursday’s gains as traders digest the European Central Bank's hawkish interest-rate hike.
• US Dollar tumbles with US Treasury bond yields due to dismal United States data, post-Fed profit-taking.
• Gold price struggles with 21-Daily Moving Average at $1,958 as daily RSI stays below the 50 level.   

Gold price is consolidating the previous turnaround near $1,960 early Friday in the aftermath of the US Federal Reserve (Fed) and the European Central Bank (ECB) policy announcements.

US Dollar sell-off injects new life into Gold price

Gold price witnessed two-way price action on Thursday, tumbling to the lowest level since March 17 at $1,925 before staging a staggering recovery to challenge the $1,960 threshold. The drop in Gold price in the first half of the day came on the back of the extended US Dollar strength driven by the Federal Reserve’s hawkish pause. Further, the European Central Bank’s (ECB) hawkish 25 basis points (bps) interest-rate hike also exacerbated the pain in the non-interest-bearing Gold price.  

Federal Reserve maintained the Fed funds rate at 5.0%-5.25% on Wednesday, bringing a halt to its rate-hike cycle for the first time since early 2022. However, the Fed’s Statement of Economic Projections – the so-called Dot Plot chart – portrayed a hawkish picture, with two more 25 bps rate hikes ahead. Meanwhile, the ECB met market expectations with a 25 bps lift-off while revising higher its inflation projections, with the core figure now expected to average 5.1% in 2023, 3.0% in 2024 and 2.3% in 2025. The upward revisions to the inflation projections combined with President Christine Lagarde's comments of more tightening ahead while dismissing any expectations of rate pause were viewed as hawkish.

However, the tide turned in favor of Gold price after the United States Jobless Claims and Retail Sales data came in mixed and raised concerns over the United States economic outlook. The pullback in the US Treasury bond yields gathered steam across the board, fuelling a sharp sell-off in the US Dollar while lifting Gold price. Initial weekly jobless claims were unchanged at 262,000 in the reported period against expectations of 249K, while US Retail Sales rose 0.3% in May, beating the 0.1% decline expected. It was the unexpected 0.2% drop in US Industrial Production that made matters worse for the Greenback. The sell-off in the US Dollar was also induced by the post-Fed USD longs unwinding.

So far this Friday, markets are awaiting the Bank of Japan’s (BoJ) policy decision, although it is unlikely to have any significant impact as the central bank is likely to maintain status-quo at the June meeting. Later in the day, the return of Federal Reserve policymakers on the rostrum and the Preliminary University of Michigan (UoM) Consumer Sentiment and Inflation Expectations data will be eyed for fresh trading cues on Gold price. Further, the end-of-the-week flows could play its part, as a busy and central banks’ policy decisions-heavy week draws to an end.

Gold price technical analysis: Daily chart

Gold price saw a sell-off toward the March 17 low of $1,918 on Thursday but buyers came to the rescue, yielding a daily close just above the bearish 21-Daily Moving Average (DMA) at $1,958 for the first time since May 15.

At the moment, however, Gold price is struggling to regain the upside traction. Weekly closing above the 21-DMA barrier is needed to initiate a meaningful recovery toward the $2,000 barrier.

Ahead of that, the weekly high at $1,971 and June highs at $1,984 could challenge the bearish commitments.

On the flip side, Gold price needs to breach the 21-DMA support to resume the downside toward the critical horizontal 100-DMA at $1,942.

The next support levels are seen at $1,930 round figure give way and the multi-week troughs of $1,925. The last line of defense for Gold buyers is envisioned at the March 17 low of $1,918.