Gold Price Forecast: XAU/USD looks set to cross $1,985 hurdle as softer US data weighs on US Dollar, yields

Gold Price (XAU/USD) remains on the front foot around the weekly high, making rounds to $1965 during early Friday morning in Asia, after rising the most in five weeks the previous day. It should be noted that a slew of the downbeat United States economics weighed on the Federal Reserve (Fed) bets and the US Dollar to underpin the bullish bias surrounding the XAU/USD. However, the cautious mood ahead of China’s inflation gauges for May, namely the Consumer Price Index (CPI) and Producer Price Index (PPI), prod the Gold buyers due to the Dragon Nation’s status as one of the world’s biggest XAU/USD consumers.

Gold Price cheers US Dollar weakness

Gold Price manage to post the biggest daily gains in more than a week after the sustained weakness in the United States economics raised dovish concerns about the Federal Reserve (Fed) and drowned the US Dollar the previous day.

United States Initial Jobless Claims jumped to the highest levels since October 2021 by rising to 261K in the week ended on June 02 versus 235K expected and 233K prior (revised). With this, the four-week average rose to 237.25K from 229.75K previous readings. Further, the Continuing Jobless Claims dropped to 1.757M in the week ended on May 26 from 1.794M prior (revised), compared to 1.8M market forecasts. Earlier in the week, the US ISM Services PMI, S&P Global PMIs and Factory Orders also printed downbeat outcomes and pushed back the Fed hawks while weighing on the US Dollar and favoring the Gold buyers.

Given the downbeat US data, Gold buyers appear mostly certain of witnessing no rate hike by the US Federal Reserve (Fed) interest rate hike in the next week’s Federal Open Market Committee (FOMC) monetary policy meeting. Additionally, the disappointing statistics also reduce the market’s bets on July rate lifts and drown the US Dollar, as well as add strength to the XAU/USD run-up.

IMF fails to prod XAU/USD bulls

Given the downbeat US data weighing on the greenback, the Gold Price fails to justify hawkish comments from International Monetary Fund (IMF) spokesperson Julie Kozack. That said, the global lender flagged the inflation woes and pushed major central banks, including the US Federal Reserve (Fed), towards further rate hikes. "If inflation does prove to be more persistent than expected, then the Fed may need to push interest rates higher for longer," IMF’s Kozack told reporters at a regular briefing.

Risk catalysts, China updates favor Gold buyers

The global markets portray the risk-on mood due to the aforementioned factors, as well as upbeat headlines from China, which in turn propel the Gold Price.

Multiple Chinese state banks including the Industrial and Commercial Bank of China, Bank of China and Construction Bank cut their benchmark rates. The same raises speculations that the Dragon Nation’s central bank, namely the People’s Bank of China (PBOC), will also cut the rates.

Further, the fears of China’s market intervention also favored the XAU/USD bulls as PBoC Vice Governor said, “We have confidence, conditions and capacity to maintain stable operations of the FX market.” On the same line was Li Yunze, Director of China's National Administration of Financial Regulation, who also made upbeat remarks on the Chinese economy as he said, “Economy still recovering,” while adding that demand will be boosted.

Against this backdrop, the US Treasury bond yields slumped while Wall Street benchmarks rose and exerted downside pressure on the greenback. That said, the benchmark US 10-year Treasury bond yields reversed from the highest levels in a fortnight to 3.72% whereas the two-year counterpart also snapped a two-day winning streak to drop to 4.52% at the latest. It should be noted, however, that the S&P500 Futures struggle for clear directions.

Looking ahead, China’s inflation gauges for May, namely the Consumer Price Index (CPI) and Producer Price Index (PPI), will gain major attention due to the Dragon Nation’s status as one of the biggest Gold consumers. The forecast suggests that the headline CPI will improve to 0.3% YoY in May versus 0.1% prior whereas the PPI could drop further to -4.3% YoY from -3.6% previous readings. Given the mixed outlook, the XAU/USD traders will look for any surprises.

Gold Price Technical Analysis

Gold price stays within a three-week-old trading range comprising the 100-DMA support and a slightly downward-sloping trend line from May 18, respectively near $1,940 and $1,985 by the press time.

While closely observing the XAU/USD price, it becomes easy to establish the bullish chart formation backed by the Relative Strength Index (RSI) line, placed at 14.

That said, the Gold Price marks higher lows and gains support from an ascending RSI line, forming higher lows on the oscillator, which in turn confirms the market’s gradually building bullish bias for the yellow metal.

Hence, the XAU/USD is well-set to challenge the stated trading range’s top line, close to $1,985. However, a break of which appears difficult as multiple hurdles stand tall to challenge the Gold buyers around the $2,000 psychological magnet.

On the other hand, a daily closing below the 100-DMA support of around $1,940 defies the bullish chart signals and can drag the Gold Price towards the $1,985-80 support zone, comprising levels marked in February and March of 2023.

Gold Price: Daily chart

Trend: Further upside expected