Gold Price Forecast: XAU/USD needs validation from $1,975 and Fed Minutes for a sustained recovery

Gold price has paused its previous sharp reversal from near six-week lows of $1,952 in Wednesday’s trading so far. The United States Dollar (USD) is holding close to two-month highs against its major rivals amid the US debt-ceiling standoff.

US debt-ceiling impasse injects life into the US Dollar

The US Dollar recovered its lost footing and reached a fresh two-month peak across the FX board on Tuesday, extending the Gold price sell-off toward the six-week low of $1,952. However, Gold bulls managed to find support at that level and staged a solid comeback as US Treasury bond yields pulled back sharply from two-month highs amid broad risk aversion.

Markets remained risk-averse following the release of the preliminary Manufacturing and Services PMI reports from across the Eurozone and the UK, which fuelled concerns over a global economic slowdown. Risk sentiment worsened further in American trading after the US preliminary Manufacturing PMI unexpectedly dipped into contraction in May, coming in at 48.5.

Moreover, negotiations over raising the US debt ceiling remained at an impasse after House Speaker Kevin McCarthy said that the two parties had yet to reach a deal to avert a first-ever US default, while Republican Representative Garret Graves said there are no more meetings planned. A combination of these discouraging news killed the market’s appetite for risk assets and bolstered the US Dollar’s safe-haven appeal alongside the US government bonds, smashing the US Treasury bond yields across the curve.

Focus on Fed Minutes and US debt-limit updates

Markets still trade with caution amid impending risks of a US default as the standoff continues. Therefore, the US Dollar is likely to keep the upper hand if risk-off flows gather steam ahead of the release of the Minutes from the US Federal Reserve (Fed) May policy meeting. Should the Minutes read dovish, it will back Chair Jerome Powell’s recent dovish commentary, triggering a fresh downswing in the Greenback with the US Treasury bond yields while boding well for the USD-denominated Gold price.

Further, the developments surrounding the United States debt limit and the Fedspeak will be also closely followed by the markets for fresh trading impetus.

Gold price technical analysis: Daily chart

Gold sellers are likely to fight back control if buyers fail to find acceptance above the descending trendline resistance at $1,975 on a daily closing basis.

Tuesday’s recovery in Gold price could peter out, exposing the downside back toward the $1,960 static support, below which the six-week low at $1,952 could be put to test.

Further south, the March 27 low of $1,944 could come to the rescue of Gold bulls.

The 14-day Relative Strength Index (RSI) is trading just beneath the midline, keeping Gold sellers hopeful.

On the flip side, immediate resistance is seen at the descending trendline, placed at $1,975, above which the bullish 50 DMA at $1,991 could be challenged.

Thereafter, Gold buyers will look to recapture the flattish 21 DMA barrier, now at $2,001. Daily closing above the 21 DMA level is needed to take on the upside toward the critical $2,022 supply zone.