Gold Price Forecast: XAU/USD edges higher on US debt ceiling woes, lacks bullish conviction

• Gold price oscillates in a narrow trading band and is influenced by a combination of factors.
• A modest intraday US Dollar uptick acts as a headwind and caps the upside for the XAU/USD.
• The downside remains cushioned amid looming recession risks and US debt ceiling woes.
• Fed Chair Powell’s less hawkish remarks on Friday should continue to lend some support.

Gold price struggles to capitalize on Friday's goodish recovery move from the vicinity of the $1,950 level, or its lowest level since early April touched on Friday and kicks off the new week on a subdued note. The XAU/USD seesaws between tepid gains/minor losses through the early European session and currently trades around the $1,980 area, up a little for the second straight day. 

Modest US Dollar strength weighs on Gold price

The US Dollar (USD) attracts some dip-buying on Monday and for now, seems to have stalled Friday's retracement slide from a two-month high. This, along with the optimism over a potential improvement in relations between the United States (US) and China, acts as a headwind for the US Dollar-denominated Gold price. In fact, US President Joe Biden said during the Group of Seven (G7) summit in Japan that he expects US-China relations to improve very shortly. This, however, is overshadowed by worries over slowing global growth and a surprise breakdown in the US debt ceiling negotiations.

US debt ceiling woes, economic worries lend support to XAU/USD

It is worth recalling that talks over the potential to raise the government's $31.4 trillion debt ceiling suddenly broke down at the end of the last week. This raises scepticism about a deal being reached soon and fuels fears of an unprecedented American debt default. Apart from this, less hawkish remarks by Federal Reserve (Fed) Chair Jerome Powell act as a headwind for the USD and lend support to the safe-haven Gold price. Speaking at a Fed research conference, Powell said that it is unclear if interest rates will need to rise further amid uncertainty about the impact of past hikes.

Fed Chair Powell’s less hawkish remarks further limit the downside

Powell reiterated that the central bank would now make decisions meeting by meeting and added that officials can afford to look at the data and the evolving outlook to make a careful assessment after a year of aggressive rate increases. Powell's preference to slow rate hikes triggers a fresh leg down in the US Treasury bond yields, which is holding back the USD bulls from placing aggressive bets and contributing to limiting the downside for the non-yielding Gold price. The lack of any meaningful buying, meanwhile, warrants some caution before positioning for any further appreciating move.

Focus shifts to this week’s important US macro data and FOMC minutes

There isn't any major market-moving economic data due for release on Monday from the US. Hence, the focus remains glued to a key meeting between President Joe Biden and House Republican Speaker Kevin McCarthy to discuss the debt ceiling. Apart from this, the US bond yields will influence the USD price dynamics and provide some impetus to Gold price. Traders will further take cues from the broader risk sentiment to grab short-term opportunities ahead of the release of the flash US PMI prints on Tuesday and the Federal Open Market Committee (FOMC) meeting minutes on Wednesday.

Gold price technical outlook

From a technical perspective, a sustained strength beyond the $1,984-$1,985 region has the potential to lift the Gold price back to the $2,000 psychological mark. Some follow-through buying will negate any near-term negative bias and allow the XAU/USD to climb further towards the next relevant hurdle near the $2,011-$2,012 region. The latter should act as a pivotal point, which if cleared decisively might trigger a fresh bout of a short-covering move.

On the flip side, the $1,950 region now seems to have emerged as strong support and should protect the immediate downside. Some follow-through selling, however, will expose the 100-day Simple Moving Average (SMA), currently pegged near the $1,930 zone, below which Gold price could accelerate the fall further towards testing the $1,900 round-figure mark.

Key levels to watch