Gold Price Forecast: XAU/USD stays bearish as US debt ceiling talks, Fed Chair Powell’s speech loom

• Gold price grinds near seven-week low, bears take a breather after three-day downtrend.
• Optimism about United States debt ceiling talks, hawkish Federal Reserve comments underpin USD strength and weigh on XAU/USD.
• Recent challenges to US debt limit extension, US-Taiwan trade deal prod the Gold price.
• Fed Chair Powell’s speech, Sunday’s press conference of US President Biden will be crucial for the Gold price direction.

Gold price (XAU/USD) licks its wounds at the multi-day low amid Friday’s sluggish Asian morning as the market’s previous optimism fades amid recent challenges for the key risk catalysts. Even so, the optimism surrounding the United States debt ceiling passage and the hawkish Federal Reserve (Fed) bets are strong enough to prod the XAU/USD bulls ahead of Fed Chair Jerome Powell’s speech. That said, the Gold price steadied near $1,960 by the press time, after falling to the lowest levels since April 03 the previous day during its three-day downtrend.

Gold price nosedives on strong United States Treasury bond yields, US Dollar

Gold price bears the burden of the strong United States Treasury bond yields and the US Dollar as it stays near the multi-day low marked the previous day. That said, hawkish Fed bets and favorable US data join the concerns that the US policymakers will be able to extend the debt ceiling seem to underpin the recent run-up by the US T-bond yields and the USD, which in turn weigh on the XAU/USD.

Talking about the data, US Initial Jobless Claims for the week ended on May 12 dropped to 242K on Thursday, versus 254K expected and 264K prior whereas the Philadelphia Fed Manufacturing Survey gauge for May improved to -10.4 from -31.3 prior, versus -19.8 market forecasts. Further, US Existing Home Sales for April eased to 4.28M versus analysts’ estimations of 4.3M and 4.44M prior. It’s worth noting that the US Retail Sales and Industrial Production for April printed upbeat figures earlier in the week and inspired the Fed hawks to defend their “higher for longer rates” bias, which in turn allowed the US Dollar to regain its power and drown the Gold price.

In a case of the Federal Reserve officials’ comments, Dallas Federal Reserve President Lorie Logan said on Thursday, as reported by CNBC, that data at this time does not support skipping an interest rate hike at the next meeting in June. On the same line, Fed Governor Philip Jefferson said on Thursday that inflation remains too high whereas St Louis Fed President James Bullard reiterated his support for higher rates and exerting downside pressure on the XAU/USD price.

Due to the aforementioned catalysts, the market’s bets on the Fed rate cuts in 2023 drop heavily in recent days while the odds of a 0.25% rate hike in June gained acceptance, even with little speed. The same allows the US Dollar and yields to remain firmer and please the XAU/USD bears. That said, the US Dollar Index (DXY) jumped to the highest levels since March 20 while the US 10-year and two-year bond coupons jumped to the March 15 tops. Further, Wall Street closed on the positive side amid cautious optimism in the market.

Elsewhere, the latest speeches from US President Joe Biden and Republican US House Speaker Kevin McCarthy keep markets hopeful of witnessing no default of the US in paying its government debt. The same allows the Gold price to drop amid a firmer US Dollar.

Challenges for US President Biden, fears of Sino-American tensions prod Gold bears

Contrary to what’s mentioned above, the latest challenges for US President Biden in avoiding the US default and the likely escalation in the US-China tussles due to the trade deal between the US and Taiwan seem to put a floor under the Gold price. Adding strength to the XAU/USD recovery could be the market’s anxiety ahead of Federal Reserve Chairman Jerome Powell’s speech.

As markets turn optimistic about no US default, backed by the latest speeches from US President Joe Biden and Republican US House Speaker Kevin McCarthy, Reuters came out with a warning note while citing the powerful group of the US decision-makers, namely the House Freedom Caucus. “The small but powerful Republican faction warned this week that they could try to block any agreement to raise the $31.4 trillion debt ceiling from passing the House of Representatives, if the accord does not contain ‘robust’ federal spending cuts,” said the news.

On the other hand, the US Trade Representative's (USTR) office announced on Thursday that The US and Taiwan reached an agreement on the first part of their ‘21st Century’ trade initiative, covering customs and border procedures, regulatory practices, and small business. This comes ahead of planned meetings between China's Commerce Minister Wang Wentao and USTR Tai and US Commerce Secretary Gina Raimondo, which in turn can propel the Sino-American tension and prod the US Dollar advances, which in turn may favor the Gold price.

Amid these plays, S&P 500 Futures struggle to track Wall Street’s gains while posting a minor upside near 4,220 level.

XAU/USD eyes Fed’s Powell, US policymakers’ deal to avoid default

Looking forward, Federal Reserve (Fed) Chairman Jerome Powell’s speech and US debt ceiling negotiations will be the key as US President Joe Biden said to have the decision to avoid a default by Sunday. Should Fed Chair Powell manage to defend the latest hawkish bias about the US central bank, the Gold price may have a further downside to track. On the other hand, US President Joe Biden’s inability to seal the deal could fuel the XAU/USD price.

Gold price technical analysis

Gold price extends the downside break of a two-month-old ascending trend line and the 50-DMA as it prods the $1,950 support comprising the late January peak.

Adding strength to the seller’s dominance are the bearish signals from the Moving Average Convergence and Divergence (MACD) indicator. However, the Relative Strength Index (RSI) line, placed at 14, remains well below the 50 level and suggests bottom-picking of the Gold price.

As a result, the 100-DMA and an upward-sloping support line stretched from November 2022, respectively near $1,927 and $1,920, may restrict the XAU/USD’s further downside.

In a case where the Gold price remains bearish past $1,920, the odds of witnessing a slump to the $1,900 round figure can’t be ruled out.

On the contrary, the 50-DMA the previous support line, close to $1,984 and $1,995 in that order, will precede the $2,000 round figure to restrict short-term recovery of the Gold price.

Should the XAU/USD remains firmer beyond the $2,000 psychological magnet, highs marked in late March and early April, around $2,010 may act as an extra check ahead of fueling the quote towards the five-week-old horizontal resistance near $2,050.

To sum up, Gold price is likely to decline further but appears to have limited room towards the south.

Gold price: Daily chart

Trend: Further downside expected