Gold Price Analysis: XAU/USD probes 21DMA as bulls remain in control amid buck softness

• Gold is trading in the $1850s, up about 0.4% though lower versus early session highs in the $1860s.
• XAU/USD is trading over 3.5% higher versus last week’s lows amid a pullback in the US dollar.
• Key Fed events and US economic data present two-sided risks to the precious metal this week.

Spot gold (XAU/USD) has pulled back from earlier session highs in the $1860s per troy ounce after probing the 21-Day Moving Average at $1858, though prices are still higher by about 0.4% on the day (around $8.0) amid a soft start to the week for the US dollar. At present, XAU/USD is trading in the $1850s and is still in a bullish trend since its bounce from multi-month sub-$1790 lows printed this time last week. At current levels, gold is over 3.5% higher versus these lows.

The main driver of this recovery over the past week has been a weakening of the US Dollar Index (DXY), which has pulled sharply lower from multi-decade highs printed above 105.00 earlier in the month. Since these highs set ten days ago on 13 May, the DXY has dropped more than 2.5% to the low-102.00s. This drop came despite Fed policymakers sounding exceedingly hawkish last week in their intent to continue pressing ahead with rate hikes to tame rampant inflation, even in the face of a weakening economy/stock markets.

Given the Fed’s role as a key driver of upside in the buck over the last few months, analysts are not unsurprisingly questioning how much further this dollar pullback has to run. Surely dip-buyers will come back in at some point, they question. If there is a dollar recovery this week, that would be bad for XAU/USD.

This week's economic events arguably present two-sided risks for XAU/USD. On the one hand, there will be plenty of Fed speak as well as the release of the May meeting minutes and the tone is expected to be as hawkish as ever. On the other hand, US (and global) flash May PMIs on Tuesday plus Thursday’s second estimate of Q1 US GDP growth may combine to trigger fresh concerns about US (and global growth), which could offer silver some safe-haven support, especially if it is deemed as dampening long-term Fed tightening prospects.