Gold Price Forecast: XAU/USD ticks lower on modest US Dollar strength, downside seems limited

Gold price ticks lower on the first day of a new week and trades with a mild negative bias, just below the $1,955 level heading into the European session. 

The Federal Reserve (Fed) last week signalled that borrowing costs may still need to rise by as much as 50 basis points (bps) by the end of this year, which assists the US Dollar (USD) to gain some positive traction for the second successive day. In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, looks to build on Friday's modest bounce from over a one-month low and acts as a headwind for the US Dollar-denominated Gold price.

Apart from this, a more hawkish outlook by major central banks further contributes to capping the upside for the non-yielding Gold price. It is worth recalling that the Reserve Bank of Australia (RBA) and the Bank of Canada (BoC) delivered a surprise 25 bps rate hike earlier this month. Moreover, the European Central Bank (ECB) last week lifted rates by 25 bps, to the highest level in 22 years, and projected indicated further tightening to bring down inflation.

The Bank of England (BoE) and the Swiss National Bank (SNB) are also expected to hike interest rates by 25 bps later this week. That said, a generally weaker tone around the equity markets helps the safe-haven Gold price to hold its neck just above the 100-hour Simple Moving Average (SMA) support. Worries about a global economic downturn, particularly in China, weigh on investors' sentiment and drive some haven flows, warranting caution for bearish traders.

Investors might also prefer to wait on the sidelines ahead of Fed Chair Jerome Powell's two-day congressional testimony on Wednesday and Thursday, which will be looked for fresh clues about the future rate-hike path. This, in turn, will play a key role in influencing the near-term USD price dynamics and provide some meaningful impetus to the Gold price. This makes it prudent to wait for some follow-through selling below the 100-day SMA before positioning for any further losses.

Technical levels to watch