Gold Price Forecast: XAU/USD moves back above $2,000 amid weaker USD, bulls lack conviction

Gold price regains some positive traction on Tuesday and moves away from a one-and-half-week low, around the $1,981 region touched the previous day. The XAU/USD sticks to its modest intraday gains, around the $2,000 psychological mark, through the first half of the European session, though the intraday uptick lacks bullish conviction.

Modest US Dollar weakness benefits Gold price

The US Dollar (USD) comes under some selling pressure and for now, seems to have stalled a two-day-old recovery trend from a one-year low touched last week. This, in turn, is seen lending some support to the US Dollar-denominated Gold price, though a combination of factors keeps a lid on any meaningful appreciating move. The Federal Reserve (Fed) is expected to continue lifting interest rates amid a rise in short-term inflation expectations. This, along with a positive tone around the equity markets, might hold back traders from placing aggressive bullish bets around the XAU/USD.

Bets for more Fed rate hikes act as a headwind for XAU/USD

The University of Michigan's preliminary report released last Friday showed that one-year inflation expectations rose from 3.6% to 4.6% in April. Furthermore, Fed Governor Christopher Waller on Friday called for further rate hikes and said that the job was still not done as inflation remains far too high. Adding to this, the New York Fed reported on Monday that its barometer of manufacturing activity in the state increased for the first time in five months. This, in turn, lifted bets for another 25 basis points (bps) lift-off at the next Federal Open Market Committee (FOMC) meeting in May.

Positive risk tone contributes to capping gains for Gold price

The prospects for further policy tightening by the Fed keep the US Treasury bond yields elevated, which, in turn, caps gains for the non-yielding Gold price. Meanwhile, stronger-than-expected Chinese economic growth eases fears about an imminent global recession and boosts investors' confidence. Data released earlier this Tuesday showed that the Chinese economy expanded by 4.5% during the January-March quarter, well above estimates and the 2.9% in the previous quarter. This, in turn, dents demand for traditional safe-haven assets and keeps a lid on any further gains for the XAU/USD.

Traders now eye US housing market data for some impetus

Market participants now look forward to the US economic docket, featuring the release of Building Permits and Housing Starts later during the early North American session. This, along with 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 XAU/USD.

Gold price technical outlook

From a technical perspective, the $1,980 area now seems to have emerged as an immediate strong support. A convincing break through the said level will negate the positive outlook and prompt some technical selling. The Gold price might then accelerate the corrective decline towards the $1,965-$1,960 intermediate support en route to the $1,950 horizontal zone.

On the flip side, bulls might now wait for a move beyond the overnight swing high, around the $2,015-$2,016 area before placing fresh bets. The Gold price might then climb to the YTD peak, around the $2,047-$2,049 region touched last Thursday, before climbing further towards retesting the all-time high, around the $2,070-$2,075 region set in August 2020.

Key levels to watch