Gold Price Forecast: XAU/USD seems poised to prolong its recent positive momentum

• Gold attracted some dip-buying on Friday and climbed back closer to multi-month tops.
• The market reaction to stronger than expected US inflation turned out to be short-lived.
• Retreating US bond yields undermined the USD and extended some support to the metal.

Gold witnessed an intraday turnaround on Friday and rallied over $25 from three-day lows, around the $1,882 region. The US core PCE Price Index – the Fed's preferred inflation gauge – jumped 3.1% YoY in April and validated the higher inflation narrative. This, in turn, fueled speculations that the Fed might be forced to tighten its monetary policy sooner rather than later and prompted some selling around the non-yielding yellow metal.

The initial market reaction, however, turned out to be short-lived as the markets were braced for something worse. Mover, investors seem convinced with the Fed's stubbornly dovish view that recent price pressures should prove temporary. This was evident from a fresh leg down in the US Treasury bond yields, which acted as a headwind for the US dollar and provided a goodish lift to the dollar-denominated commodity.

The momentum pushed the precious metal back above the $1,900 mark and seemed rather unaffected by the risk-on rally in the equity markets, which tends to undermine the safe-haven XAU/USD. Nevertheless, the precious metal ended the week on a positive note and inched back closer to multi-month tops, around the $1,910 region during the Asian session on Monday, though lacked any strong follow-through buying.

Given that markets in Britain and the United States are closed for a holiday, relatively thin liquidity might hold bulls from placing aggressive bets and cap the upside for the commodity. Investors might also prefer to stay on the sidelines and look forward to the release of the US monthly jobs report on Friday for a fresh directional impetus. In the meantime, the USD price dynamics, the US bond yields and the broader market risk sentiment might assist traders to grab some meaningful opportunities.

Short-term technical outlook

From a technical perspective, the emergence of some dip-buying on Friday favours bullish traders and supports prospects for additional gains. A subsequent move beyond monthly swing highs, around the $1,912-13 region will reaffirm the positive outlook and push the commodity to an intermediate resistance near the $1,930 area. The momentum could further get extended towards the next major hurdle near the $1,960-65 supply zone.

On the flip side, the $1,900-$1,895 area might now protect the immediate downside ahead of Friday’s swing lows, around the $1,882 region. This is followed by support near the $1,870-68 horizontal support, which if broken decisively might prompt some long-unwinding trade. The metal might then accelerate the fall further towards the $1,852-50 support zone. Any further decline might be seen as a buying opportunity and remain limited near the very important 200-day SMA, around the $1,845-44 region.