Gold Price Forecast: XAU/USD trades with modest losses as US Dollar buying revives

• Gold price edges lower for the second successive day, albeit lacks follow-through.
• A goodish pickup in the US Dollar demand exerts some pressure on the XAU/USD.
• The fundamental backdrop warrants caution before positioning for deeper losses.

Gold price extends the previous day’s late pullback from the vicinity of the $2,050 level, or the weekly high, and remains under some selling pressure for the second straight day on Thursday. The XAU/USD maintains its offered tone through the early part of the European session and is currently placed around the $2,025-$2,024 region, down nearly 0.35% for the day.

Resurgent US Dollar demand weighs on Gold price

Following the overnight slide, the US Dollar (USD) makes a solid comeback and jumps to over a one-week high in the last hour amid the uncertainty over the Federal Reserve’s (Fed) monetary policy outlook. This, in turn, is seen as a key factor exerting some downward pressure on the US Dollar-denominated Gold price. Data released on Wednesday showed that US annual inflation, measured by the Consumer Price Index (CPI), fell below 5% in April for the first time in two years, paving the way for a pause in the Fed’s year-long rate-hiking cycle. In fact, the current market pricing indicates a 95% chance that the Fed will hold rates at their current level in June, according to data from the CME FedWatch tool. Investors, however, remain divided over the possibility of rate cuts later this year, which, in turn, prompt some short-covering around the Greenback.

Economic worries could benefit the safe-haven XAU/USD

The downside for the Gold price, however, seems limited, at least for the time being, amid worries about slowing economic growth. Fears were fueled by the mixed Chinese inflation figures published early Thursday. The National Bureau of Statistics (NBS) reported that headline CPI in China rose 0.1% in April, the lowest rate since February 2021, giving further evidence of tepid domestic demand. Moreover, China’s Producer Price Index (PPI) fell for the seventh consecutive month and registered its fastest drop since May 2020. This, in turn, raises concerns about the broader economic outlook for the second quarter and should lend support to the safe-haven XAU/USD. Apart from this, a mildly softer tone around the US Treasury bond yields could act as a tailwind for the non-yielding yellow metal.

The prospects for an imminent shift in the Fed’s hawkish stance, along with worries about the US debt ceiling, drag the US bond yields lower. This might hold back the USD bulls from placing aggressive bets and warrants some caution before positioning for a meaningful depreciating move in Gold price. Market participants now look forward to the US economic docket, featuring the release of the Producer Price Index (PPI) and the usual Weekly Initial Jobless Claims data during the early North American session. Apart from this, Fed Governor Christopher Waller’s scheduled speech, along with the US bond yields, will drive the USD demand and provide some impetus to the precious metal. Traders will further take cues from the broader risk sentiment to grab short-term opportunities around the XAU/USD.

Gold price technical outlook

From a technical perspective, any subsequent slide is likely to find some support near the $2,014 area, or the weekly low touched on Monday. This is closely followed by the $2,000 psychological mark, which if broken might prompt some technical selling. The Gold price might then turn vulnerable to accelerate the fall towards the $1,980 zone en route to the $1,970 strong horizontal support. Some follow-through selling will negate any near-term positive outlook and shift the bias in favour of bearish traders.

On the flip side, the $2,050 region now seems to have emerged as an immediate strong barrier. Some follow-through buying has the potential to lift Gold price back towards the all-time high, around the $2,078-$2,079 region touched last Thursday. The momentum could get extended further and allow bulls to conquer the $2,100 round-figure mark.

Key levels to watch

XAU/USD