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Gold Price Forecast: XAU/USD hangs near monthly low on modest US Dollar strength

  • Gold price drops closer to its lowest level since early April amid modest US Dollar strength.
  • A combination of factors keeps the US bond yields elevated and underpins the Greenback.
  • Looming recession risks could lend support to the safe-haven XAU/USD and help limit losses.

Gold price remains under some selling pressure for the second successive day on Tuesday and drops back closer to its lowest level since early April during the early European session. The XAU/USD currently trades around the $1,960 area, down over 0.60% for the day, and is pressured by a modest US Dollar (USD) strength.

Modest US Dollar strength weighs on Gold price

In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, holds steady just below a two-month high touched last week and is seen driving flows away from the US Dollar-denominated Gold price. The overnight hawkish remarks by several Federal Reserve (Fed) officials reaffirmed market expectations that the US central bank will continue hiking interest rates. St. Louis Fed President James Bullard said on Monday that the Fed may still need to raise its benchmark interest rate by another half-point this year. Furthermore, Minneapolis Fed President Neel Kashkari also said it was a close call whether he would vote to raise interest rates or to pause the central bank's tightening cycle when it meets next month.

Elevated US bond yields further undermine Gold price

Separately, Atlanta Fed President Raphael Bostic said he was comfortable waiting a little bit before deciding on any further moves. Meanwhile, Richmond Fed President Thomas Barkin said he was still looking to be convinced that inflation is in a steady decline. Nevertheless, the outlook lifts bets that the Fed will keep interest rates higher for longer. This, along with hopes that politicians in the United States (US) can come together on a debt ceiling deal and keeps the US Treasury bond yields elevated. In fact, US President Joe Biden and House Speaker Kevin McCarthy ended discussions on Monday with no agreement on how to raise the US government's $31.4 trillion debt ceiling but will keep talking just 10 days before a possible default.

Looming recession risks could limit losses for XAU/USD

The optimism, meanwhile, allowed the yield on the benchmark 10-year US government bond to rise for a seventh straight day on Monday and register its longest winning streak since April 2022. This, in turn, lends additional support to the Greenback and further contributes to the offered tone surrounding the non-yielding Gold price. That said, worries over slowing global growth, particularly in China, continue to weigh on investors' sentiment. It is worth recalling that data from China last week showed that the world's second-largest economy underperformed in April. Adding to this, mostly disappointing manufacturing PMI prints from the Eurozone further fuel recession fears and could lend some support to the safe-haven XAU/USD, at least for the time being.

Traders now look to US economic data for fresh impetus

Market participants now look forward to the US economic docket, featuring the flash PMI print, New Home Sales data and the Richmond Manufacturing Index, due for release later during the early North American session. This, along with the US debt ceiling talks and the US bond yields, will influence the USD price dynamics and provide some impetus to Gold price. Apart from this, traders will take cues from the broader risk sentiment to grab short-term opportunities around the safe-haven precious metal. Nevertheless, the aforementioned fundamental backdrop seems tilted in favour of bearish traders and supports prospects for a further near-term depreciating move.

Gold price technical outlook

From a technical perspective, some follow-through selling below the $1,950 region will be seen as a fresh trigger for bearish traders and expose the 100-day Simple Moving Average (SMA), currently pegged near the $1,931 zone. Failure to defend the said support will make the Gold price vulnerable to accelerate the slide further towards testing the $1,900 round-figure mark.

On the flip side, the ongoing recovery back above the $1,970 horizontal support breakpoint is more likely to attract fresh sellers near the $1,982-$1,984 region. This, in turn, should cap Gold price near the $2,000 psychological mark. That said, a sustained strength beyond could lift the XAU/USD towards the next relevant hurdle near the $2,011-$2,012 region.

Key levels to watch

XAU/USD

Overview
Today last price1959.93
Today Daily Change-11.97
Today Daily Change %-0.61
Today daily open1971.9
 
Trends
Daily SMA202003.78
Daily SMA501989.73
Daily SMA1001930.4
Daily SMA2001826.71
 
Levels
Previous Daily High1982.63
Previous Daily Low1968.95
Previous Weekly High2022.18
Previous Weekly Low1952.01
Previous Monthly High2048.75
Previous Monthly Low1949.83
Daily Fibonacci 38.2%1974.18
Daily Fibonacci 61.8%1977.4
Daily Pivot Point S11966.36
Daily Pivot Point S21960.81
Daily Pivot Point S31952.68
Daily Pivot Point R11980.04
Daily Pivot Point R21988.17
Daily Pivot Point R31993.72

Author

Haresh Menghani

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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