Gold Price Forecast: XAU/USD scales higher on weaker US Dollar, trades around $1,965 region

• Gold price stages a goodish recovery from its lowest level since April touched the previous day.
• A modest USD pullback from a nearly two-month high is seen lending support to the XAU/USD.
• Hawkish Fed expectations and US debt ceiling optimism should help limit losses for the USD.
• Traders now look forward to Fed Chair Jerome Powell’s speech for a fresh directional impetus.

Gold price gains some positive traction on Friday and snaps a three-day losing streak to the $1,950 area, or the lowest level since early April touched the previous day. The XAU/USD sticks to its modest intraday gains through the first half of the European session and currently trades around the $1,965-$1,966 region, up over 0.40% for the day.

Modest US Dollar downtick lends support to Gold price

The US Dollar (USD) edges lower on the last day of the week as bulls opt to take some profits off the table following the recent runup to a nearly two-month high. This, in turn, is seen as a key factor benefitting the US Dollar-denominated Gold price, though any meaningful upside still seems elusive. The modest USD downtick is more likely to remain cushioned amid expectations that the Federal Reserve (Fed) will keep interest rates higher for longer. In fact, Dallas Fed President Lorie Logan said on Thursday that the economic data points so far don’t justify skipping a rate increase at the next policy meeting in June. Moreover, several Fed officials this week expressed concerns that inflation in the United States (US) was not cooling fast enough. This, in turn, forces investors to scale back their bets for interest rate cuts later this year.

A combination of factors should cap gains for XAU/USD

Apart from this, the latest optimism that a deal to lift the US debt ceiling could be reached this week keeps the US Treasury bond yields elevated, which favours the USD bulls and might cap gains for the non-yielding Gold price. It is worth recalling that top US congressional Republican Kevin McCarthy said on Thursday that negotiations are at a better place and expect a bill to raise the government's $31.4 trillion debt ceiling on the House floor next week. This helps ease fears about a default by the world's largest economy and boosts investors' confidence, which is evident from a generally positive tone around the equity markets. The risk-on mood could further contribute to keeping a lid on any meaningful upside for the safe-haven XAU/USD, warranting some caution for bullish traders and positioning for a further intraday appreciating move.

Focus remains on Fed Chair Jerome Powell’s appearance

Traders might also prefer to wait on the sidelines ahead of Fed Chair Jerome Powell's speech later during the US session, which might provide fresh cues about the future rate hike path and provide a fresh directional impetus to Gold price. The CME Group's FedWatch Tool indicates that markets are pricing a greater chance of a pause in the Fed's rate-hiking cycle at the next Federal Open Market Committee (FOMC) policy meeting in June. Hence, a hawkish tilt will lift bets for another 25 basis points (bps) lift-off next month, which should be enough to provide a fresh lift to the Greenback and weigh heavily on Gold price. Nevertheless, the XAU/USD remains on track to register its biggest weekly drop in three-and-half-months.

Gold price technical outlook

From a technical perspective, the overnight swing low, around the $1,950 region, now seems to protect the immediate downside. Some follow-through selling will expose the 100-day Simple Moving Average (SMA), currently pegged near the $1,928 zone, below which Gold price could slide further towards testing the $1,900 round-figure mark.

On the flip side, the ongoing recovery move-up is more likely to attract fresh sellers near the $1,970-$1,980 strong horizontal support breakpoint. This, in turn, should cap the Gold price near the $2,000 psychological mark. Some follow-through buying, however, might lift the XAU/USD towards the next relevant hurdle near the $2,011-$2,012 region. The latter should act as a pivotal point, which if cleared decisively might trigger some near-term short-covering move. 

Key levels to watch