Gold Price holds above key level, focus shifts to Powell's testimony

Gold Price seems to have gone into a consolidation phase near $1,850 after having gained more than 2% in the previous two days. Markets remain relatively quiet ahead of the three-day weekend in the US and XAUUSD remains on track to post weekly losses despite the impressive rally witnessed following the Federal Reserve's policy announcements.

Key support stays intact

Although the near-term technical outlook fails to provide a clear directional clue, sellers could remain on the sidelines as long as gold manages to hold above the 200-day SMA, which is currently located at $1,840. FOMC Chairman Jerome Powell's comments during his two-day testimony before the US Senate next week will be the next significant catalyst.

Also read: Gold Price Forecast: $1,815 remains a tough nut to crack for XAU/USD bulls, focus on yields.

Gold Price at the mercy of US yields

US Treasury bond yields fell sharply in the second half of the week and allowed gold to gain traction. With the initial reaction to the FOMC's decision to hike the policy rate by 75 basis points, the benchmark 10-year US Treasury bond yield climbed above 3.4%. During the press conference, however, Powell refrained from committing to another 75 bps hike in July and caused yields to fall sharply. The Swiss National Bank's unexpected rate hike on Thursday and the Bank of England's 25 bps rate increase, caused the market focus to shift to European bonds and the 10-year US yield extended its slide before settling near 3.2% on Friday.

The US Dollar Index reached its highest level in more than two decades at 105.78 on Wednesday but erased a large portion of its weekly gains. The greenback failed to gather strength despite the risk-averse market environment as the Swiss franc and the Japanese yen became the go-to safe-haven assets. The renewed dollar weakness helped XAUUSD preserve its bullish momentum on Thursday.

Fed Chairman Powell will deliver his semi-annual monetary policy testimony before the Senate Banking Committee on Wednesday. After presenting his opening statement, Powell will respond to questions. According to the CME Group FedWatch Tool, markets are currently pricing in an 88.5% probability of a 75 bps rate hike in July. The market positioning suggests that there is room for US yields to fall if Powell revives expectations for a 50 bps hike at the next meeting. On the other hand, another decisive rally in US yields could be hard to come by even if Powell confirms a 75 bps hike. 

FOMC Chairman Jerome Powell testifying before Senate

XAUUSD price could also be impacted by next week's PMI reports. Investors grow increasingly concerned over a global recession as major central banks look to continue to tighten their policies. If PMI data from the euro area and Germany point to a loss of growth momentum in the private sector, market participants could see that as a reminder of the widening policy gap between the European Central Bank (ECB) and the Fed. In that scenario, XAUUSD could come under renewed bearish pressure. 

Gold Price technical outlook

Gold Price lost its bullish momentum on Friday. The Fibonacci 23.6% retracement level of the latest downtrend and the 20-day SMA form the first resistance at $1,850. In case gold starts using that level as support, it could target $1,875 (50-day SMA, Fibonacci 38.2% retracement) and $1,890 (100-day SMA).

On the downside, a daily close below $1,840 (200-day SMA) could be seen as a bearish development and bring in sellers. In that scenario, interim support aligns at $1,830 (static level) ahead of $1,810 (static level) and $1,800 (psychological level).

In the meantime, the Relative Strength Index (RSI) on the daily chart stays slightly below 50, reflecting gold's indecisiveness in the short term. Similarly, the Average Directional Index (ADX) indicator is now at its weakest level since early February at 12.

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