Gold Price Analysis: XAU/USD trades with modest losses above $1,955, downside seems limited

• Gold price edges lower on the first day of a new week and erodes a part of Friday's positive move.
• A more hawkish outlook by major central banks exert some downward pressure on the XAU/USD.
• Hopes that the Fed will end its rate-hiking cycle soon could help limit further losses for the metal.

Gold price struggles to capitalize on Friday's rebound from the vicinity of over a two-week low and kicks off the new week on a softer note. The XAU/USD remains on the defensive through the Asian session and currently trades just above the $1,955 level, down over 0.15% for the day.

The upbeat US GDP report released last Thursday pointed to an extremely resilient economy and kept the door open for one more 25 bps rate-hike by the Federal Reserve (Fed) in September or November. It is worth recalling that Fed Chair Jerome Powell had said last week that the economy still needs to slow and the labour market to weaken for inflation to credibly return to the 2% target. This, in turn, remains supportive of elevated US Treasury bond yields, which, to a larger extent, helps offset signs of colling inflationary pressures in the US and assists the US Dollar (USD) to hold steady below a nearly three-week high touched on Friday. A stronger Greenback tends to weigh on US Dollar-denominated commodities, which, along with a more hawkish stance adopted by other major central banks exerts some pressure on the Gold price.

In fact, the European Central Bank (ECB) noted that inflation, though continues to decline, is still expected to remain too high for too long and backed the case for further policy tightening. Moreover, the Bank of England (BoE) is expected to raise its benchmark interest rate by 25 bps on August 3, to 5.25%, or the highest since early 2008. The markets have also been pricing in two more BoE rate hikes by the end of this year as price pressures persist. Furthermore, the Bank of Japan (BoJ) started the proscess of moving away from decades of massive monetary stimulus and made its Yield Curve Control (YCC) policy flexible on Friday. This suggests that the path of least resistance for the Gold price is to the downside, though speculations that the Fed is nearing the end of its fastest interest rate hiking cycle since the 1980s might help limit losses.

The US Bureau of Economic Analysis reported that the Personal Consumption Expenditures (PCE) Price Index advanced 0.2% in June and rose 3.0% over the twelve months, registering its smallest gains since March 2021. Adding to this, the Core PCE Price Index (excluding the volatile food and energy components) came in at 4.1% YoY rate - the smallest increase since September 2021. This comes on the back of the US CPI report earlier this month and further points to signs of easing inflationary pressures. This should allow the Fed to soften its hawkish stance and supports prospecs for the emregence of some dip-buying around the Gold price, warranting some caution before placing fresh bearish bets around the Gold price.

Technical levels to watch