Gold Price Forecast: XAUUSD retreats from two-week high amid modest USD strength

• A combination of factors prompted some selling around gold on Wednesday.
• A pickup in the USD demand undermined the metal amid a positive risk tone.
• Recession fears could help limit deeper losses ahead of the FOMC minutes.

Gold witnessed some selling on Wednesday and snapped a five-day winning streak to over a two-week high, around the $1,870 area set the previous day. The XAUUSD extended its steady intraday descent through the early European session and touched a fresh daily low, near the $1,856 region in the last hour. The US dollar made a solid comeback and reversed a major part of the overnight losses to a one-month low. This, in turn, was seen as a key factor that undermined the dollar-denominated commodity. Apart from this, a goodish recovery in the US equity futures exerted additional downward pressure on the safe-haven precious metal.

The downside, however, seems limited, at least for the time being, amid the worsening global economic outlook. Investors remain worried that a more aggressive move by major central banks to constrain inflation could pose challenges to global economic growth. Adding to this, the Russia-Ukraine war and the latest COVID-19 outbreak in China have been fueling recession fears. This, along with the idea that the Fed could pause the rate hike cycle later this year and a softer tone surrounding the US Treasury bond yields, could act as a tailwind for the non-yielding gold. Hence, the focus remains on the FOMC meeting minutes.

Given that a 50 bps Fed rate hike move at the next two meetings is fully priced in, market participants will look for clues about the possibility of a jumbo hike in June. This will play a key role in influencing the near-term USD price dynamics and provide a fresh directional impetus to gold. Heading into the key event risk, the US Durable Goods Orders data could drive the greenback later during the early North American session. Apart from this, the US bond yields and the broader risk sentiment could produce short-term trading opportunities.

Technical levels to watch