Gold Price Forecast: XAU/USD needs to find acceptance above 21 DMA for further upside

Gold price is extending the rebound into the second straight day this Tuesday, having tested the $2,000 psychological mark amid persistent weakness in the United States Dollar (USD) alongside the US Treasury bond yields.

Focus on United States tech earnings and Consumer Confidence data

Following a brief pullback on Friday, US Dollar sellers returned with a bang amid a quiet session on Monday, taking the negative lead from the US Treasury bond yields as they tumbled across the curve. The benchmark 10-year US Treasury bond yields fell eight basis points (bps), the biggest one-day decline since March. The 10-year US rates breached the 3.50% level yet again.

Markets repriced the US Federal Reserve (Fed) rate hike expectations, with the Fed seen pausing after the May 25 bps rate hike. The US central bank is expected to cut rates as early as July to end the year below 4.50%. Worries over the ongoing US debt ceiling drama also triggered haven flows into US government bonds, smashing US Treasury bond yields and the US Dollar.

“US President Joe Biden and House Speaker Kevin McCarthy are set to enter the next stage of the debt ceiling standoff, with a key vote and fresh Treasury data that could raise the urgency for a deal,” Bloomberg reported. Meanwhile, Moody's warned on House leader McCarthy's proposal to cut spending, citing that it "would meaningfully increase the likelihood" of a recession.

Investors digested conflicting corporate earnings and economic data from the United States. Besides these factors, hawkish comments from the European Central Bank (ECB) policymakers gave the much-needed boost to the Euro, driving EUR/USD closer to the 1.1100 level. The EUR/USD rally exacerbated the pain in the US Dollar Index, thus motivating Gold bulls.

Pierre Wunsch, the European Central Bank’s (ECB) Governing Council member, said, “I would not be surprised if we had to go to 4 per cent at some point.” His colleague, Isabelle Schnabel, said a 50 bps rate hike is not off the table next week.

In the day ahead, should the US Dollar see a fresh leg lower amid the ongoing sell-off in the US Treasury bond yields, the Gold price could stretch its recovery beyond the $2,000 level. Gold’s fate, however, hinges on the Conference Board Consumer Confidence data from the United States and a series of corporate earnings from the US giants - Pepsi, General Motors, General Electric, McDonald's, Microsoft, UBS and UPS, as it would play a pivot role in impacting risk appetite and, in turn, the US Dollar demand.  

Gold price technical analysis: Daily chart

Gold price managed to defend the $1,970 support and staged a rebound on Monday, with the bulls now looking to find a foothold above the flattish 21-Daily Moving Average (DMA) support-turned-resistance at $1,995.

Daily closing above will initiate a fresh recovery mode toward the static resistance at around $2,015; ahead of that, the $2,000 round figure will offer stiff resistance to Gold buyers.

The 14-day Relative Strength Index (RSI) is rising above the midline, justifying the renewed upside in the Gold price. If the rebound gathers steam, Gold price will look to challenge the previous yearly high at $2,032.

On the flip side, should Gold bulls face rejection above the 21 DMA barrier, a drop back toward the previous day’s low of $1,974 cannot be ruled. Further south, the static support at $1,970 could again be prodded.

The last line of defense for Gold buyers is seen at the 1,950 level, the confluence of the key psychological level and the April 3 low.