Gold Price Forecast: XAU/USD drops to nearly one-month low amid sustained US Dollar buying

Gold price drifts lower for the third successive day - also marking the sixth day of a negative move in the previous seven - and drops to a nearly one-month low during the first half of the European session. The XAU/USD currently trades just above the $1,970 level, down nearly 0.50% for the day, and is pressured by a combination of factors.

Sustained US Dollar buying continues to weigh on Gold price

The US Dollar (USD) prolongs its recent uptrend witnessed over the past two weeks or so and touches a fresh high since March 24, which, in turn, is seen driving flows away from the US Dollar-denominated Gold price. Against the backdrop of speculations that the Federal Reserve (Fed) will keep interest rates higher for longer, the optimism over the potential lifting of the debt ceiling in the United States (US) remains supportive of elevated US Treasury bond yields and underpins the USD.

US debt ceiling optimism further undermines the safe-haven XAU/USD

It is worth recalling that the recent hawkish comments by several Fed officials pushed back against market expectations for rate cuts later this year. Furthermore, US President Joe Biden and top congressional Republican Kevin McCarthy underscored their determination to strike a deal soon to raise the government's $31.4 trillion debt ceiling. This helps calm fears of an unprecedented American debt default and boosts investors' confidence, which further weighs on the safe-haven Gold price.

Looming recession fears could lend some support to Gold price

Market participants, however, remain worried about slowing global growth, particularly in China, which could lend support to the XAU/USD and help limit deeper losses, at least for the time being. Traders might also refrain from placing aggressive bets ahead of Fed Chair Jerome Powell's appearance on Friday. Investors will look for fresh clues about the US central bank's near-term policy outlook, which should help determine the next leg of a directional move for the Gold price.

Thursday’s US macro data and Fed speaks eyed for fresh impetus

In the meantime, traders will look to Thursday's US economic docket, featuring the release of the usual Weekly Initial Jobless Claims, the Philly Fed Manufacturing Index and Existing Home Sales, for some impetus. Apart from this, scheduled speeches by Fed members, the US bond yields and the US debt-limit negotiations will influence the USD price dynamics. This, along with the broader risk sentiment, could produce short-term trading opportunities around the Gold price.

Gold price technical outlook

From a technical perspective, some follow-through selling below the $1,970 horizontal support might be seen as a fresh trigger for bearish traders. This could make the Gold price vulnerable to prolonging its recent corrective pullback from the all-time high, around the $2,078-$2,079 area touched earlier this month. The XAU/USD might then accelerate the fall towards testing the 100-day Simple Moving Average (SMA), currently pegged near the $1,925 region, with some intermediate support near the $1,950-$1,948 region.

On the flip side, any attempted recovery above the $1,980 level is likely to confront stiff resistance and remain capped near the $2,000 psychological mark. That said, a sustained strength beyond might trigger a short-covering rally and lift the Gold price to the $2,020-$2,021 hurdle en route to the $2,035-$2,040 region. Some follow-through buying should allow the XAU/USD to climb back towards the all-time high and extend the momentum further towards conquering the $2,100 round-figure mark.

Key levels to watch