Gold Price Forecast: XAUUSD sticks to gains above $1,850, lacks follow-through amid risk-on

• Sustained USD selling bias assisted gold to gain some positive traction on Friday.
• Speculations that the Fed would pause the rate hike cycle and undermined the buck.
• The risk-on impulse could cap gains for the metal ahead of the US PCE Price Index.

Gold built on the overnight bounce from the very important 200-day SMA support and edged higher on the last day of the week. The XAUUSD held on to its modest intraday gains through the early European session and was last seen trading near the top end of the daily range, just above the $1,850 level.

The US dollar prolonged its recent bearish trend and dropped to a fresh one-month low on Friday, which, in turn, benefitted the dollar-denominated gold. The FOMC meeting minutes released on Wednesday suggested that the Fed could pause the rate hike cycle after two 50 bps hikes each in June and July amid the worsening economic outlook. The speculations were further fueled by Thursday's release of the Prelim US GDP report, which showed that the world's largest economy contracted by a 1.5% annualized pace in the first quarter. This was seen as a key factor that exerted downward pressure on the buck.

Meanwhile, doubt over the Fed's ability to bring inflation under control without sinking the economy into recession continued dragging the US Treasury bond yields lower. In fact, the yield on the benchmark 10-year US government bond fell to a six-week low, which further undermined the greenback and offered additional support to the non-yielding gold. That said, a positive turnaround in the global risk sentiment - as depicted by a generally positive tone around the equity markets - could act as a headwind for the safe-haven precious metal. This might hold back bulls from placing aggressive bets.

Market participants now look forward to the release of the US Core PCE Price Index - the Fed's preferred inflation gauge - for some impetus later during the early North American session. This, along with the US bond yields will influence the USD price dynamics and provide some impetus to gold. Apart from this, traders will take cues from the broader market risk sentiment to grab short-term opportunities on the last day of the week.

Technical levels to watch