Gold Price Forecast: XAU/USD plummets to over two-week low amid resurgent US Dollar demand

• Gold price meets with heavy supply on Wednesday and dives to over a two-week low.
• Rising US bond yields boost the US Dollar and contribute to the steep intraday slide.
• A weaker risk tone fails to impress bulls or lend support to the safe-haven XAU/USD.

Gold price comes under intense selling pressure on Wednesday and tumbles to over a two-week low during the mid-European session. The XAU/USD is currently placed near the $1,970 area, down around 1.75% for the day, and seems poised to extend its recent pullback from over a one-year high touched last week.

Resurgent US Dollar demand weighs heavily on Gold price

The US Dollar (USD) makes a solid comeback following the previous day's modest decline and climbs back closer to the weekly high, which, in turn, is seen weighing heavily on Gold price. The messages from Federal Reserve (Fed) officials have been very hawkish lately, supporting prospects for further policy tightening by the US central bank. Fed Governor Christopher Waller said on Friday that a year of aggressive rate hikes "haven't made much progress" in returning inflation to their 2% target and the central bank still needs to move rates higher.

Bets for more rate hikes by Federal Reserve contribute to the fall

Adding to this, St. Louis Fed President James Bullard, during an interview on Tuesday, backed the case for additional 75 basis points of tightening versus market expectations for one more 25 bp hike next month and the potential for cuts later this year. Adding to this, impressive bank earnings eased fears about a full-blown banking crisis that unfolded in March following the collapse of Silicon Valley Bank. Moreover, the incoming macro data from the United States (US) pointed to a resilient economy and fueled concerns that the Fed may have more work to do.

The risk-off mood fails to lend any support to the safe-haven XAU/USD

Expectations that the US central bank will continue raising interest rates remain supportive of the recent rally in the US Treasury bond yields. In fact, the benchmark 10-year US government bond and the rate-sensitive two-year Treasury note jumps to a near one-month high, lifting the USD away from a one-year low set last week. This further contributes to driving flows away from the non-yielding Gold price. Bulls, meanwhile, seem rather unaffected by a generally weaker tone around the equity markets, which tends to benefit traditional safe-haven assets, including the XAU/USD.

The global risk sentiment takes a hit amid growing fears about economic headwinds stemming from rising borrowing costs. This, to a larger extent, overshadows stronger-than-expected Chinese economic growth figures released on Tuesday, which eased fears about a deeper global economic downturn, and tempers investors' appetite for perceived riskier assets. This, however, fails to lend any support to Gold price, suggesting that the path of least resistance for the metal is to the downside and validating the near-term bearish outlook.

Traders now eye Fed’s Beige Book for some impetus

In the absence of any relevant market-moving economic data from the US on Wednesday, investors will focus on the release of the Fed’s Beige Book for the central bank’s take on the state of the US economy. This, along with the US bond yields, will influence the USD and provide some impetus to the Gold price. Traders will further take cues from the broader risk sentiment to grab short-term opportunities ahead of speeches by FOMC members - Chicago Fed President Austan Goolsbee, Fed Governors Christopher Waller and Lisa Cook - on Thursday.

Gold price technical outlook

From a technical perspective, a sustained break below the $1,980 horizontal support could be seen as a fresh trigger for bearish traders. Moreover, oscillators on the daily chart have just started drifting in the negative territory and support prospects for an extension of the ongoing downfall. Hence, a subsequent slide towards testing the next relevant support near the $1,956-$1,955 area, en route to the monthly low around the $1,950 region, looks like a distinct possibility.

On the flip side, attempted recovery back above the $1,980 support breakpoint might now confront stiff resistance near the $2,000 psychological mark. This is followed by the $2,010 barrier, which if cleared decisively might negate the negative outlook and prompt some short-covering move. The Gold price might then aim to surpass the $2,020 intermediate hurdle and climb back to the $2,040 horizontal resistance en route to the YTD peak, around the $2,047-$2,049 region.

Key levels to watch