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Gold Price Forecast: XAU/USD consolidates around the $1,960 area, just below a 1-week high

  • Gold price is trading in a narrow range just below the one-week high reached this Wednesday.
  • The appearance of further dollar buying and expectations from a hawkish Federal Reserve limit gains.
  • Economic woes overshadow optimism on the US debt ceiling and limit XAU/USD losses.

Gold price is struggling to take advantage of the rebound from the $1,932 zone, or its lowest level since March 17, and oscillates between tepid gains and small losses during the first half of the European session on Wednesday. XAU/USD is currently trading around the $1,960 level, virtually unchanged on the day and just below the one-week high reached today.

The strength of the Dollar weighs down the price of Gold

A combination of supportive factors lifts the US dollar (USD) to a more than two-month high, which, in turn, acts as a headwind for the gold price. Legislation negotiated by the President of the United States , Joe Biden, and House Speaker Kevin McCarthy’s bid to raise the $31.4 trillion debt ceiling and achieve further federal spending cuts cleared a major hurdle late Tuesday. In fact, the bill cleared its first procedural hurdle on Tuesday, as the House Rules Committee voted 7-6 to advance it to the floor for debate and a final approval vote on Wednesday. This, coupled with expectations that the Federal Reserve (Fed) is likely to raise interest rates, provides a nice boost for the dollar.

Bets on more rate hikes by the Fed further constrain XAU/USD

Investors now seem convinced that the US central bank will keep interest rates higher for longer and are pricing in a higher probability of another 25 basis point hike at the next Federal Open Market Committee (FOMC) policy meeting. in June. Bets were bolstered by Friday’s release of the US PCE, the Fed’s preferred inflation gauge, indicating that inflation is holding steady. This further limits gold price rallies. That said, the risk aversion momentum lends some support to the safe-haven precious metal and helps limit downsides, warranting caution from bearish traders.

Risk Aversion Momentum Supports Gold Price

Market sentiment remains fragile amid concerns about slowing global economic growth, especially in China. The National Bureau of Statistics (NBS) reported that Chinese factory activity contracted faster than expected and the official manufacturing PMI fell in May to its lowest level in five months, 48.8 points. In addition, service sector activity expanded at the slowest pace in four months and the official non-manufacturing PMI fell to 54.5 in May from 56.4 previously, fueling recession fears and dampening investor appetite for riskier assets. Meanwhile, the risk averse current causes a further decline in US Treasury yields, which constrains the Dollar and could benefit XAU/USD.

Traders await further impetus from US macroeconomic data and statements from the Federal Reserve.

This mixed background is more likely to prevent traders from positioning for an extension of the bounce from the 100-day SMA or the recent pullback from the all-time high reached earlier this month. Market participants are now looking forward to the US economic calendar, with the release of the Chicago PMI and the JOLTS Jobs Offers. This, along with speeches from influential FOMC members and US bond yields, will boost demand for the USD. Apart from this, the broader risk sentiment could give a significant boost to the gold price.

Gold Price Technical Outlook

From a technical point of view, any further move higher beyond the daily high, around the $1,965 region, could attract new sellers and remain capped near the $1,980 region. The latter should act as a pivot point which, if breached, would allow gold to regain the psychological $2,000 mark. On the other hand, the $1,943 area appears to protect the immediate dip ahead of the 100-day SMA and multi-month low around the $1,932 region. A convincing break below those support levels would be another trigger for the bears and would drag XAU/USD towards the $1,900 area.

XAU/USD Technical Levels

XAU/USD

Overview
Today’s last price 1958.53
Today Daily Change -0.75
Today Daily Change % -0.04
Today daily open 1959.28
trends
Daily SMA20 1991.79
Daily SMA50 1991.7
Daily SMA100 1936.74
Daily SMA200 1832.52
levels
Previous Daily High 1963.56
Previous Daily Low 1932.12
Previous Weekly High 1985.3
Previous Weekly Low 1936.77
Previous Monthly High 2048.75
Previous Monthly Low 1949.83
Daily Fibonacci 38.2% 1951.55
Daily Fibonacci 61.8% 1944.13
Daily Pivot Point S1 1939.75
Daily Pivot Point S2 1920.21
Daily Pivot Point S3 1908.31
Daily Pivot Point R1 1971.19
Daily Pivot Point R2 1983.09
Daily Pivot Point R3 2002.63

Source: Fx Street

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