Gold Price Forecast: XAU/USD presents ‘sell the bounce’ trade below 21 DMA barrier

Gold price is trading back and forth in an extremely tight range near the $1,960 level, struggling to find a clear directional impetus amid a cautious market environment and a lack of high-impact United States economic data releases.

United States Dollar at the mercy of risk sentiment, Fed bets

The United States Dollar has paused its retreat seen in the US last session, as bulls are attempting a comeback amid a worsening market mood. The optimism induced by hopes for stimulus from China and expectations of a US Federal Reserve (Fed) pause seems to be fading early Wednesday.

Amidst the US Dollar uptick, Gold price is struggling to regain the upside traction even though the US Treasury bond yields fall for the third straight day. Markets pared back their expectations of a rate hike at next week's Fed meeting. They are now pricing in a roughly 19% chance that the Federal Reserve will raise rates by 25 basis points (bps) next week, compared to an over 60% chance a week ago, the latest data from the CME Group’s FedWatch tool showed. The benchmark 10-year US Treasury bond yields are losing 1.12% on the day to trade at 3.66% at the time of writing.

Investors also assess the recent series of downbeat Chinese data, including Wednesday’s Trade Balance report, as growing worries over China’s economic recovery dent risk sentiment. China’s Trade Surplus unexpectedly shrank to a one-year low in May, hit mainly by a sharp drop in exports. The country’s imports also remained unimpressive, keeping investors unnerved. Note that China is the world’s biggest Gold consumer. Discouraging Chinese trade numbers also limit any upside attempts in the Gold price.

Later in the day, Gold price will remain at the mercy of the dynamics of the US Dollar and the US Treasury bond yields, as the United States economic calendar is devoid of any high-impact data releases and the Federal Reserve is in its ‘blackout period.” Broader market sentiment will play a pivotal role in the Gold price action.

Gold price technical analysis: Daily chart

The short-term technical outlook for Gold price remains almost unchanged, with choppy trading likely to continue so long as Gold price remains between the two key Daily Moving Averages (DMA), the 21 and the 100, now at $1,974 and $1,941, respectively.

The 21 and 50 DMA Bear Cross and the bearish 14-day Relative Strength Index (RSI) remain in play and keep Gold sellers hopeful.

Gold bears must crack the 100 DMA support to refuel the correction toward the March 17 low of $1,918. Ahead of that, the previous week’s low at $1,932 could offer strong support to Gold bulls.

On the flip side, the Gold price recovery could gain traction only on a sustained break above the downward-pointing 21 DMA at $1,974, above which the flattish 50 DMA at $1,991 could be challenged.  

The following relevant upside target for Gold buyers is envisioned at the $2,000 psychological level.