Gold Price Forecast: XAU/USD recovers early lost ground, climbs back above $1,970 level

• Gold price attracts some dip-buying and rebound from a one-week low touched on Monday.
• The US Dollar surrenders its modest intraday gains and lends some support to the XAU/USD.
• Rising bets for more rate hikes by the Federal Reserve cap any meaningful gains for the metal.

Gold price reverses an intraday fall to the $1,950 zone, or a four-day low touched earlier this Monday and builds on its intraday ascent through the first half of the European session. The XAU/USD is currently placed near the top end of its daily trading range, just above the $1,970 level, though the lack of follow-through buying warrants some caution for aggressive bullish traders.

The emergence of fresh US Dollar selling benefits Gold price

The US Dollar (USD) surrenders its intraday gains to a one-week high amid the uncertainty over the Federal Reserve's (Fed) rate-hike path and turns out to be a key factor driving flows towards the US Dollar-denominated Gold price. It is worth recalling that the Fed had signalled recently that it might soon pause the rate-hiking cycle in the wake of the turmoil in the banking sector. The bets were reaffirmed by the release of the Personal Consumption Expenditures (PCE) Price Index data from the United States (US) on Friday, which pointed to cooling inflation. Investors, however, seem worried that a surprise production cut by major oil producers will push inflation higher and force the Fed to move back to its inflation-fighting rate hikes.

Federal Reserve rate hike bets cap gains for Gold price

In fact, the Organization of the Petroleum Exporting Countries and their allies - known as OPEC+ - shook markets by announcing further production cuts of about 1.16 million barrels per day (bpd) on Sunday. This leads to a big bullish gap opening in Oil prices, reviving inflation fears and fueling speculations about further policy tightening by the Fed. The current market pricing indicates a greater chance of a 25 bps lift-off at the next Federal Open Market Committee (FOMC) monetary policy meeting in May. This, in turn, pushes the US Treasury bond yields higher, which could act as a tailwind for the Greenback and might hold back traders from placing aggressive bullish bets around the non-yielding Gold price, at least for now.

Trades look to key macro data from United States for fresh impetus

Market participants now look forward to important US macro data, scheduled at the beginning of a new month for some meaningful impetus. A rather busy week starts with the US ISM Manufacturing PMI, due later during the early North American session on Monday, which, along with the US bond yields, could drive the USD demand and allow traders to grab short-term opportunities around Gold price. Investors will further take cues from the ADP report on private-sector employment and ISM Services PMI on Wednesday, followed by the crucial US monthly employment report - popularly known as NFP on Friday. The latter will influence the near-term USD price dynamics and help determine the next leg of a directional move for the XAU/USD.

Gold price technical outlook

From a technical perspective, the range-bound price action witnessed over the past week or so constitutes the formation of a rectangle on the daily chart. Against the backdrop of a strong rally from the March swing low, this might still be categorized as a bullish consolidation phase and supports prospects for a further appreciating move for Gold price. Bulls, however, might wait for some follow-through buying beyond the $1,980-$1,982 supply zone before placing fresh bets. The XAU/USD might then aim to surpass the $2,000 psychological mark and retest a one-year high, around the $2,009-$2,010 zone touched in March.

On the flip side, the $1,950-$1,945 zone now seems to protect the immediate downside ahead of the $1,935 support zone and the $1,920-$1,918 region. A convincing break below the said support levels could negate the near-term positive outlook and prompt aggressive technical selling. The gold price might then weaken further below the $1,900 round-figure mark, towards an intermediate support near the $1,885 level and the $1,875-$1,870 area.

Key levels to watch