Gold Price Experiences Difficulty in Building on Friday’s Slight Rebound

Gold price faces challenges in leveraging Friday’s modest recovery from the $1,970 area, experiencing some selling pressure at the start of the new week. During the Asian session, XAU/USD hovers around $1,977, remaining within close proximity to the two-week low reached last Wednesday. A modest increase in US Dollar strength contributes to a decline in gold price The potential for additional policy tightening by the Federal Reserve (Fed) supports the US Dollar’s appeal on Monday, subsequently causing gold prices to drop for a second consecutive day.

The market now appears convinced that the Fed will persist in raising interest rates to tackle high inflation in the United States (US) and has fully priced in a 25 bps increase at the upcoming Federal Open Market Committee (FOMC) policy meeting in May. Additionally, Fed funds futures suggest a slight possibility of another rate hike in June.

Bullish Federal Reserve expectations bolster the USD These expectations are reinforced by recent hawkish remarks from several Fed officials, as well as positive incoming US macro data, indicating the resilience of the world’s largest economy. Friday’s flash version of S&P Global’s PMI survey revealed that overall business activity in the US private sector expanded at an accelerated rate in April. Service sector activity increased for the third consecutive month at its quickest pace in a year, while the US manufacturing sector gauge entered expansion territory for the first time since October 2022.

Gold Technical Outlook

From a technical standpoint, bearish investors may wait for continued selling below the $1,969 area before positioning for an extension of the recent pullback from a one-year high. Gold price could then decline towards the next significant support near the $1,955 zone before ultimately falling to the monthly low around the $1,950 area.

Conversely, any substantial recovery effort is likely to encounter new sellers near the $2,000 psychological level and remain limited around the $2,010 barrier. Persistent strength beyond that point could initiate a new round of short-covering and push the gold price past the $2,020 obstacle, towards the $2,040 horizontal area and ultimately to the year-to-date high, approximately the 2,050 area.