Gold Price Forecast: XAU/USD consolidates around $1,960 area, just below one-week high

• Gold price oscillates in a narrow range just below a one-week high touched this Wednesday.
• The emergence of fresh US Dollar buying and hawkish Federal Reserve expectations cap gains.
• Economic woes overshadow the US debt ceiling optimism and limit losses for the XAU/USD.

Gold price struggles to capitalize on the overnight bounce from the $1,932 region, or its lowest level since March 17 and seesaws between tepid gains/minor losses through the first half of the European session on Wednesday. The XAU/USD currently trades around the $1.960 level, nearly unchanged for the day and just below a one-week high touched earlier today.

Stronger US Dollar weighs on Gold price

A combination of supporting factors lifts the US Dollar (USD) to over a two-month high, which, in turn, acts as a headwind for Gold price. The legislation brokered by United States (US) President Joe Biden and House Speaker Kevin McCarthy to lift the $31.4 trillion debt ceiling and achieve new federal spending cuts passed an important hurdle late on Tuesday. In fact, the bill cleared its first procedural hurdle on Tuesday as the House Rules Committee voted 7-6 to advance it to the floor for a debate and a final passage vote on Wednesday. This, along with expectations that the Federal Reserve (Fed) will likely raise interest rates, provides a goodish lift to the Greenback.

Bets for more rate hikes by Federal Reserve further cap XAU/USD

Investors now seem convinced that the US central bank will keep interest rates higher for longer and are now pricing in a greater chance of another 25 bps lift-off at the next Federal Open Market Committee (FOMC) policy meeting in June. The bets were lifted by the US Personal Consumption Expenditures Price Index - the Fed's preferred inflation gauge - released on Friday, which indicated that inflation remains sticky. This further contributes to capping the upside for the non-yielding Gold price. That said, the risk-off impulse is seen lending some support to the safe-haven precious metal and helping limit the downside, warranting caution for bearish traders.

The risk-off impulse lends support to the safe-haven Gold price

The market sentiment remains fragile amid worries about slowing global economic growth, particularly in China. The National Bureau of Statistics (NBS) reported that China's factory activity shrank faster than expected and the official Manufacturing PMI fell to a five-month low of 48.8 in May. Furthermore, service sector activity expanded at the slowest pace in four months and the official non-manufacturing PMI fell to 54.5 in May from 56.4 previous, fueling recession fears and tempering investors' appetite for riskier assets. The anti-risk flow, meanwhile, leads to a further decline in the US Treasury bond yields, which caps the USD and could benefit the XAU/USD.

Traders now look to US macro data, Fedspeaks for fresh impetus

The aforementioned mixed fundamental backdrop is more likely to hold back traders from positioning for an extension of the overnight bounce from the 100-day Simple Moving Average (SMA) or the recent pullback from an all-time high touched earlier this month. Market participants now look forward to the US economic docket, featuring the release of the Chicago PMI and JOLTS Job Openings later during the early North American session. This, along with speeches by influential FOMC members and the US bond yields, will drive the USD demand. Apart from this, the broader risk sentiment could provide some meaningful impetus to Gold price.

Gold price technical outlook

From a technical perspective, any subsequent move up beyond the daily peak, around the $1,965 region, could attract fresh sellers and remain capped near the $1.980 region. The latter should act as a pivotal point, which if cleared could allow the Gold price to reclaim the $2.000 psychological mark. On the flip side, the $1,943 area seems to protect the immediate downside ahead of the 100-day Simple Moving Average (SMA) and the multi-month low, around the $1,932 region. A convincing break below the said support levels will be seen as a fresh trigger for bearish traders and drag the XAU/USD further towards the $1,900 round-figure mark

Key levels to watch