Gold Price Forecast: XAU/USD hangs near two-week low, below $1,990 amid stronger US Dollar

• Gold price languishes near a two-week low amid sustained US Dollar buying on Wednesday.
• Hawkish Federal Reserve expectations contribute to capping the upside for the XAU/USD.
• Concerns about the US debt ceiling lend some support and help limit further losses, for now.

Gold price enters a bearish consolidation phase and oscillates in a narrow trading band just above a two-week low touched earlier this Wednesday. The XAU/USD remains on the defensive through the first half of the European session and currently trades around the $1,987-$1,988 region, down less than 0.10% for the day.

Stronger US Dollar acts as headwind for Gold price

The US Dollar (USD) gains positive traction for the second straight day and climbs to a nearly two-month high, which turns out to be a key factor undermining Gold price. The recent hawkish comments from several Federal Reserve (Fed) officials pushed back against speculations for interest rate cuts later this year and continue to underpin the Greenback. In fact, Cleveland Fed President Loretta Mester said on Tuesday that interest rates are not at a sufficiently restrictive level and that the central bank isn't at the spot to hold rates yet.

Hawkish Federal Reserve expectations contribute to cap XAU/USD

Separately, Chicago Fed President Austan Goolsbee said that it was premature to be discussing interest rate cuts. Furthermore, Atlanta Fed president Raphael Bostic noted that the central bank would need to stay super strong in fighting inflation, even if the unemployment rate starts to rise later in the year. This comes on the back of a rise in consumer inflation expectations and lifts market bets that the Fed will keep interest rates higher for longer, which is seen as another factor acting as a headwind for the non-yielding Gold price.

US debt ceiling concerns lend some support to Gold price

The CME FedWatch tool, however, indicates a greater chance that the Fed will stand pat on rates in June. This, along with a standoff to raise the federal government's borrowing limit, lends some support to the safe-haven Gold price and helps limit the downside, at least for the time being. House of Representatives Speaker Kevin McCarthy told reporters that the two sides were still far apart. US President Joe Biden and Republican leaders, meanwhile, have expressed cautious optimism that a deal to raise the US debt ceiling is within reach.

Bias seems tilted in favour of XAU/USD bears

This leads to a modest recovery in the global risk sentiment, which is evident from a generally positive tone around the equity markets and might hold back traders from placing aggressive bullish bets around the Gold price. Moreover, the lack of any buying interest suggests that the path of least resistance for the XAU is to the downside and any attempted recovery runs the risk of fizzling out rather quickly. Market participants now look to the US housing market data and developments surrounding the US debt-limit negotiations for a fresh impetus.

Gold price technical outlook

From a technical perspective, some follow-through selling below the $1,980 area will expose the next relevant support near the $1,970 region. A convincing break below the latter will be seen as a fresh trigger for bearish traders and make the Gold price vulnerable to prolong its recent corrective pullback from the all-time high, around the $2,078-$2,079 area touched earlier this month. The XAU/USD might then accelerate the fall towards testing the 100-day Simple Moving Average (SMA), currently pegged near the $1,925 region, with some intermediate support near the $1,950-$1,948 region.

On the flip side, the $2,000 psychological mark now seems to act as an immediate hurdle. Any subsequent move up might attract fresh sellers and remain capped near the $2,020-$2,021 hurdle. That said, some follow-through buying has the potential to lift the Gold price to the $2,035-$2,040 region. Some follow-through buying should allow the XAU/USD to climb back towards the all-time high and extend the momentum further towards conquering the $2,100 round-figure mark.

Key levels to watch