Gold Price Forecast: XAU/USD recovers further from two-month low, climbs back above $1,950

• Gold price defends 100-day SMA and rebounds from over a two-month low touched on Friday.
• A modest US Dollar profit-taking slide is seen as a key factor lending support to the XAU/USD.
• Hawkish Federal Reserve expectations might cap the upside ahead of the US PCE Price Index.

Gold price attracts some buyers in the vicinity of the 100-day Simple Moving Average (SMA) and stages a modest recovery from the $1,937-$1,936 area, or over a two-month low touched the previous day. The XAU/USD climbs back above the $1,950 level during the early European session and for now, seems to have snapped a two-day losing streak.

Modest US Dollar weakness benefits Gold price

The US Dollar (USD) bulls opt to take some profits off the table following the recent runup to over a two-month high, which, in turn, is seen as a key factor benefitting the Gold price. Any meaningful upside, however, still seems elusive, at least for the time being, amid expectations that the Federal Reserve (Fed) will keep interest rates higher for longer to combat sticky inflation, which could act as a tailwind for the Greenback. In fact, the markets have started pricing in the possibility of another 25 basis points (bps) at the next Federal Open Market Committee (FOMC) policy meeting in June.

Hawkish Federal Reserve expectations to act as a headwind

The bets were lifted by the recent hawkish remarks by several Fed officials and Thursday's better-than-expected economic data from the United States (US). The US Bureau of Economic Analysis (BEA) released the revised estimate of the Gross Domestic Product (GDP) report, which showed that the economy expanded at an annualized pace of 1.3% during the January-March quarter as compared to the 1.1% estimated originally. Adding to this, an unexpected drop in the Initial Weekly Jobless Claims pointed to signs of strength in the US labour market and should allow the Fed to continue raising rates.

Focus remains glued to the US PCE Price Index

Hawkish Fed expectations, meanwhile, push the yield on the rate-sensitive two-year US government bond to a two-and-half-month high and support prospects for the emergence of some US dip-buying. This, in turn, might hold back traders from placing aggressive bullish bets around the non-yielding Gold price ahead of the release of the US Personal Consumption Expenditures (PCE) Price Index, due later during the North American session. The Fed's preferred inflation gauge will drive expectations about future rate hikes and influence the USD, providing some impetus to the XAU/USD.

Economic woes, US debt ceiling concerns continue to lend support

In the meantime, a generally softer tone around the equity markets - amid worries about a global economic slowdown and the US debt ceiling - could lend some support to the safe-haven Gold price and help limit deeper losses. In fact, Democrats and Republican negotiators flagged little progress towards reaching a deal to raise the government's $31.4 trillion borrowing limit. Adding to this, Fitch placed its top-level "AAA" rating of the US on negative watch, while credit rating agency DBRS Morningstar put the US on review for a downgrade on Thursday, tempering investors' appetite for riskier assets.

Gold price technical outlook

From a technical perspective, any subsequent move up is likely to confront stiff resistance near the $1,970-$1,980 strong horizontal support breakpoint. A sustained strength beyond might trigger a short-covering rally and lift the Gold price to the $2,000 psychological mark. A further move up, however, might still be seen as a selling opportunity and remain capped near the $2,010-$2,012 supply zone.

On the flip side, bearish traders might now wait for a sustained break below the 100-day SMA, currently pegged near the $1,935 region, before placing fresh bets. This will set the stage for an extension of the recent retracement slide from the all-time high touched earlier this month and drag Gold price to the $1,900 round-figure mark

Key levels to watch