Gold Price Forecast: XAU/USD trades with modest losses ahead of US PCE Price Index

Gold price edges lower for the third successive day on Friday, albeit lacking follow-through selling and remains confined in a familiar trading range held over the past two weeks. The XAU/USD is currently placed just above the $1,980 level and is influenced by a combination of diverging forces.

Resurgent US Dollar demand weighs on Gold price

The US Dollar (USD) regains strong positive traction and touches a fresh weekly high amid firming expectations for another 25 basis points (bps) lift-off at the next Federal Open Market Committee (FOMC) policy meeting in May. In fact, the USD Index, which tracks the Greenback against a basket of currencies, touches a fresh weekly high and exerts some downward pressure on the US Dollar-denominated Gold price. The prospects for further policy tightening by the Federal Reserve (Fed) were reaffirmed by the latest macro data released on Thursday from the United States (US), which indicated persistent price pressures and that the labor market remains healthy.

The US Bureau of Economic Analysis reported that growth in the world's largest economy slowed from 2.6% annualized pace to 1.1% during the first quarter of 2023, missing estimates for a reading of 2.0%. The disappointment, however, was offset by the GDP Price Index, which edged higher to 4% from 3.9%. Moreover, the Personal Consumption Expenditures (PCE) Prices rose from 3.7% to 4.2% during the January-March period, while the Core PCE climbed 4.9%, higher than the 4.7% estimated. Adding to this, data published by the US Department of Labor (DOL) showed that Initial Jobless claims fell to 230K in the week ended April 22 - the lowest in three weeks.

Softer risk tone and sliding US bond yields limit losses for Gold price

That said, a combination of factors lends some support to the Gold price and helps limit the downside, at least for the time being. Worries about economic headwinds stemming from rising borrowing costs temper investors' appetite for riskier assets, which is evident from a generally softer tone around the equity markets. The anti-risk flow triggers a sharp decline in the US Treasury bond yields and turns out to be a key factor acting as a tailwind for the safe-haven Gold price. Traders also seem reluctant to place aggressive directional bets and wait on the sidelines ahead of Friday's release of the US Core PCE Price Index - the Fed's preferred inflation gauge.

Traders keenly await the release of the US Core PCE Price Index

Given that the markets have been pricing in an imminent pause in the Fed's rate-hiking cycle after May, a stronger PCE Price Index report might prompt aggressive short-covering around the USD. Gold price, however, could benefit from its status as a hedge against rising inflation. Conversely, any disappointment will be enough to weigh heavily on the buck and provide a fresh boost to the XAU/USD. This, in turn, suggests that the path of least resistance for the commodity is to the downside and any subsequent slide could get bought into.

Gold price technical outlook

From a technical perspective, any subsequent slide is likely to find some support near last week's swing low, just below the $1,970 level. Some follow-through selling will be seen as a fresh trigger for bearish traders and make the Gold price vulnerable to test the next relevant support near the $1,956-$1,955 area. The XAU/USD could eventually drop to the monthly low around the $1,950 region.

On the flip side, the intraday positive move now seems to confront some resistance near the $2,000 psychological mark ahead of the $2,010 supply zone and the $2,020 horizontal barrier. A sustained strength beyond the latter will be seen as a fresh trigger for bulls and lift the Gold price move towards the $2,040 area. Bulls might eventually aim to challenge the YTD peak, around the $2,047-$2,049 region touched earlier this month.

Key levels to watch