Gold Price Forecast: XAUUSD climbs back above $1,860 level amid weaker USD

• Gold regained positive traction on the first day of a new week amid sustained USD selling.
• Expectations that the Fed could pause the rate hike cycle later this year weighed on the USD.
• The risk-on rally could undermine the safe-haven XAUUSD and cap any meaningful upside.

Gold attracted fresh buying on the first day of a new week and climbed to a fresh daily high, above the $1,860 level during the early European session. The US dollar languished near the monthly low, which, in turn, was seen as a key factor that provided a goodish lift to the dollar-denominated commodity. That said, the risk-on rally in the equity markets might hold back traders from placing aggressive bullish bets around the safe-haven XAUUSD.

The markets now expect that the Fed could pause the rate hike cycle after two 50 bps hikes each in June and July. The bets were reaffirmed by Friday's release of the US Personal Consumption Expenditure (PCE) data for April, which suggested that inflationary pressures in the US could be easing. Apart from this, the recent slump in the US Treasury bond yields to a multi-week low weighed on the buck and further benefitted the non-yielding gold, though any meaningful upside still seems elusive.

The prospects for an eventual slowdown of the Fed's policy tightening, along with the easing of COVID-19 restrictions in China, boosted investors' appetite for perceived riskier assets. This, in turn, might keep a lid on any further gains for gold amid absent relevant market-moving economic releases and the Memorial Day holiday in the US. This, in turn, suggests that any subsequent move up might attract fresh selling at higher levels and fizzle out rather quickly near the $1,869-$1,870 supply zone.

Technical levels to watch