Gold Price Forecast: For how long can XAU/USD defend 21 DMA support?

Gold price is falling for the third straight day this Friday, hitting the lowest level in five days near $2,010. Gold sellers remain in control, as the United States Dollar (USD) clings to recovery gains amid a cautious market mood.

United States Dollar set for weekly gains

Cautious optimism remains the underlying theme so far this Friday’s trading remains, allowing the US Dollar to consolidate Thursday’s staggering recovery across its major peers. Therefore, Gold price appears vulnerable to further downside risks, despite the persistent weakness in the US Treasury bond yields. The benchmark 10-year US Treasury bond yields extend a three-day downtrend, piercing through the 3.50% key level once again on sour risk sentiment.

On Thursday, risk-off flows gathered steam and revived the safe-haven demand for the Greenback, as downbeat United States Jobless Claims and Producer Price Index (PPI) data rekindled economic concerns, which got amplified by the persisting risks over the US banking sector crisis and potential default. US Initial Jobless Claims increased by 22,000 to 264,000 in the week ended May 6, hitting the highest level since October 2021. Meanwhile, the annualized Producer Price Index rose 2.3%, following a 2.7% gain in March, registering the lowest rate since January 2021.

The rush to safety boosted the demand for the Greenback, as well as the US government bonds, smashing the US Treasury bond yields and Gold price amid a ‘sell the everything’ mode. At the moment, Gold price continues to defy its bullish bias, reflected by the technical indicators. The US Dollar remains on track to book its first weekly gain in three, with eyes on developments surrounding the US debt ceiling issue. A White House spokesperson said on Thursday, “a debt limit meeting between US President Joe Biden and top lawmakers that had been scheduled for Friday has been postponed, and the leaders agreed to meet early next week.“

United States Consumer Sentiment data next on tap

After a fresh set of weak United States economic data, investors now look forward to the University of Michigan’s (UoM) preliminary Consumer Sentiment and Inflation Expectations data due later in North American trading. A weak print is likely to reinforce the bullish bets on the US Dollar, as risk sentiment could take a hit yet again on US economic slowdown concerns.

Should the US Dollar recovery regain momentum, Gold price could extend the renewed downswing, putting the $2,000 barrier at risk yet again. Speeches from US Federal Reserve (Fed) officials will also remain in focus for the market’s repricing of the Fed’s interest rates outlook.

Gold price technical analysis: Daily chart

Having faced rejection just below $2,050 earlier this week, Gold sellers have remained in charge, now attacking the flattish 21-Daily Moving Average (DMA) at $2,008.

Daily closing below the latter will add extra legs to the correction, opening up the downside toward the bullish 50 DMA at $1,972.

Ahead of that, a test of the $2,000 mark will be on the cards, below which the static support at around $1,980 will be in play.

The 14-day Relative Strength Index (RSI), however, is still holding above the 50 level, suggesting that ‘dip-buying’ trading in the Gold price is likely to continue.  

If Gold buyers manage to defend the 21 DMA support, a rebound toward the $2,020 round figure could be envisioned, above which Gold bulls would create fresh buying opportunities to challenge the weekly high at $2,048.