- Gold price edges higher on Monday and draws support from a combination of factors.
- Dovish Federal Reserve expectations weigh on the US Dollar and benefit the XAU/USD.
- Concerns about a full-blown banking crisis and the US debt ceiling further lend support.
- Traders now look to the key US consumer inflation data for a fresh directional impetus.
Gold price regains some positive traction on the first day of a new week and builds on Friday’s late bounce from levels just below the $2,000 psychological mark. The XAU/USD sticks to its gains through the first half of the European session and is currently placed near the top end of its daily trading range, around the $2,025 region.
Modest US Dollar weakness lends support to Gold price
The US Dollar (USD) edges lower for the second successive day and remains well within the striking distance of the monthly low touched last week, which, in turn, is seen benefitting Gold price. Despite the mostly upbeat release of the jobs report from the United States (US) on Friday, market participants seem convinced that the Federal Reserve (Fed) is nearing the end of its rate-hiking cycle. In fact, the Fed Fund futures point to a 90% probability that the US central bank will hold rates in June. Moreover, the markets have been pricing in the possibility that the Fed will cut rates in the second half of this year amid signs that the economy is slowing. This, in turn, continues to weigh on the Greenback and lends some support to the US Dollar-denominated commodity.
Sliding US bond yields further drive flows towards XAU/USD
Dovish Fed expectations, along with worries about a full-blown banking crisis and the US debt ceiling, lead to a further decline in the US Treasury bond yields. It is worth recalling that US Treasury Secretary Janet Yellen issued a stark warning on Sunday that a failure by Congress to act on the debt ceiling could trigger a “constitutional crisis”. Yellen added that a default would call into question the federal government’s creditworthiness and sounded the alarm over possible financial market consequences if the debt ceiling is not raised by early June. This is seen as another factor weighing on the Greenback and offering additional support to the safe-haven Gold price. That said, a generally positive tone around the equity markets might cap gains for the precious metal.
Focus now shifts to US consumer inflation figures on Wednesday
Traders also seem reluctant to place aggressive bets and prefer to wait for the latest US consumer inflation figures, due on Wednesday. The crucial US Consumer Price Index (CPI) report will play a key role in driving market expectations about the Fed’s next policy move, which, in turn, will influence the USD demand and help determine the near-term trajectory for Gold price. In the meantime, the USD remains at the mercy of the US bond yields in the absence of any relevant market-moving economic data from the US. Apart from this, the broader risk sentiment will be looked upon to grab short-term trading opportunities around the XAU/USD.
Gold price technical outlook
From a technical perspective, any subsequent move up is likely to confront some resistance near the $2,040 region ahead of the $2,050 supply zone. Some follow-through buying has the potential to lift Gold price back towards the all-time high, around the $2,078-$2,079 region touched last Thursday. The momentum could get extended further and allow bulls to conquer the $2,100 round-figure mark.
On the flip side, the daily swing low, around the $2,015 area, might now protect the immediate downside. This is followed by the $2,000 psychological mark. A convincing break below the latter might prompt some technical selling and make the Gold price vulnerable to accelerate the fall towards the $1,980 zone en route to the $1,970 strong horizontal support. Some follow-through selling will negate any near-term positive outlook and shift the bias in favour of bearish traders.
Key levels to watch