Gold Price Forecast: XAU/USD struggles for a firm direction, stuck in a range around $1,960

• Gold price remains confined in a narrow band through the first half of the European session.
• A modest US Dollar strength is seen acting as a headwind for the US Dollar-denominated metal.
• Bets for an imminent pause in the Federal Reserve’s rate-hiking cycle help limit the downside.

Gold price struggles to capitalize on the previous day's modest recovery from the 100-day Simple Moving Average (SMA) and oscillates in a narrow trading band through the first half of the European session on Tuesday. The XAU/USD currently trades just above the $1,960 level, nearly unchanged for the day and well within the striking distance of over a two-month low touched last week.

Reviving US Dollar demand caps gains for Gold price

The US Dollar (USD) attracts some dip-buying and stalls the overnight slide that followed the disappointing release of the United States (US) macro data and turns out to be a key factor acting as a headwind for the Gold price. In fact, a survey from the Institute for Supply Management (ISM) showed that economic activity in the US services sector barely grew in May and fueled speculations that the world’s largest economy was cooling. Adding to this, the Prices Paid sub-component fell to a three-year low and reaffirmed bets for an imminent pause in the Federal Reserve (Fed) rate-hiking cycle.

Dovish Federal Reserve expectations lend support to XAU/USD

It is worth recalling that a slew of influential Fed officials last week backed the case for skipping an interest rate hike in June. Moreover, the markets are currently pricing in a greater chance that the US central bank will leave interest rates unchanged at the June 13-14 Federal Open Market Committee (FOMC) policy meeting. This, in turn, leads to a further decline in the US Treasury bond yields and might hold back the USD bulls from placing aggressive bets.  Apart from this, the prevalent cautious market mood continues to act as a tailwind for the safe-haven Gold price and limits the downside.

The focus remains glued to the June 13-14 FOMC meeting

The aforementioned fundamental backdrop suggests that the path of least resistance for the XAU/USD is to the upside. Traders, however, seem reluctant and prefer to wait for more clarity about the Fed’s near-term policy outlook. Hence, the focus will remain glued to the highly-anticipated FOMC decision, scheduled to be announced at the end of a two-day policy meeting next Wednesday. In the meantime, the US bond yields will continue to play a key role in influencing the USD price dynamics in the absence of any relevant market-moving economic releases from the US on Tuesday.

Gold price technical outlook

From a technical perspective, the recent repeated failures to find acceptance below the 100-day SMA and the subsequent move-up warrants caution for bearish traders. That said, the lack of any meaningful buying makes it prudent to wait for a sustained strength beyond the $1,983-$1,985 supply zone before confirming that the recent pullback from the all-time high touched in May has run its course. The Gold price might then aim to reclaim the $2,000 psychological mark and climb further towards the next relevant hurdle near the $2,010-$2,012 region.

On the flip side, bearish traders need to wait for a convincing breakdown below the 100-day SMA, currently pegged around the $1,940-$1,939 zone, before placing fresh bets. Some follow-through selling below the May monthly swing low, around the $1,932 area, will reaffirm the negative bias and make the Gold price vulnerable to accelerate the fall towards the $1,900 round figure. The downward trajectory could get extended further and drag the XAU/USD towards the $1,876-$1,875 horizontal support en route to the very important 200-day SMA, currently around the $1,840-$1,839 region.

Key levels to watch