Gold Price Forecast: XAU/USD keeps the red below $2,000 amid modest US Dollar strength

• Gold price meets with a fresh supply on Friday and drifts back closer to the $1,980 level.
• Bets for more rate hikes by Federal Reserve underpin the US Dollar and exert pressure.
• Sliding US bond yields caps gains for the USD and lends support amid a softer risk tone.

Gold price comes under renewed selling pressure on the last day of the week and maintains its heavily offered tone through the first half of the European session. The XAU currently trades just above the $1.980 level, down over 1% for the day, and remains well within the striking distance of over a two-week low touched on Wednesday.

Renewed US Dollar buying weighs on Gold price

Growing acceptance that the Federal Reserve (Fed) will continue raising interest rates assists the US Dollar (USD) to catch fresh bids on Frida, which, in turn, is seen driving flows away from the US Dollar-denominated Gold price. In fact, the current market pricing indicates over an 80% chance of a 25 bps lift-off at the next Federal Open Market Committee (FOMC) in May and a small possibility of another rate hike in June. The bets were lifted by the overnight hawkish comments by Cleveland Fed President Loretta Mester, saying that the central bank still has more rate increases ahead of it.

Recession fears could help limit losses for XAU/USD

Mester, however, noted the aggressive move to boost the borrowing cost over the last year is nearing its end amid signs of an economic slowdown in the United States (US). Data released on Thursday showed that the Philadelphia Fed Manufacturing Index sank more than expected in April, to the lowest level since May 2020. Adding to this, the US Department of Labor (DOL) reported that the number of Americans filing claims for unemployment benefits unexpectedly rose to 245K during the week ended April 15. Furthermore, US Existing Home Sales also slowed substantially in March.

The data comes amid worried about economic headwinds stemming from rising borrowing costs and tempers investors' appetite for riskier assets, which is evident from a softer tone around the equity markets and might lend support to the safe-haven Gold price. The global flight to safety, meanwhile, leads to a further decline in the US Treasury bond yields and keeps a lid on any meaningful upside for the USD. This might hold back traders from placing aggressive bearish bets around the XAU/USD and turn out to be a key factor limiting the downside, at least for the time being.

Traders eye flash PMIs from the United States for fresh impetus

Market participants now look forward to the release of the flash US PMI prints, due later during the early North American session. Traders will further take cues from the US bond yields, which might influence the USD price dynamics and provide some impetus to Gold price. Apart from this, the broader risk sentiment should further contribute to producing short-term trading opportunities around the XAU/USD on the last day of the week.

Gold price technical outlook

From a technical perspective, any subsequent slide is likely to find some support near the weekly swing low, around the $1,969 region. Some follow-through selling should pave the way for an extension of the recent retracement slide from a one-year high. The Gold price might then slide towards testing the next relevant support near the $1,956-$1,955 area before eventually dropping to the monthly low around the $1,950 region.

On the flip side, the $2,010 area now seems to have emerged as an immediate strong barrier. A sustained strength beyond might trigger a fresh bout of a short-covering and lift Gold price beyond the $2,020 intermediate hurdle, towards the $2,040 horizontal resistance en route to the YTD peak, around the $2,047-$2,049 region.

Key levels to watch