Gold Price Forecast: XAU/USD sellers occupy driver’s seat amid US debt ceiling woes, PMIs eyed

• Gold price seesaws after a downbeat week-start amid firmer United States Dollar, Treasury yields.
• Hawkish Federal Reserve talks, cautious optimism about negotiations over US debt ceiling underpin USD, yields and weigh on XAU/USD.
• Preliminary Purchasing Managers Index for May from US, UK and Eurozone will direct the Gold price.
• Risk catalysts will be more important for clear guide of the XAU/USD.

Gold price (XAU/USD) treads water around $1,970 as markets turn cautious ahead of an active calendar, mostly comprising the Purchasing Managers Indexes from the key global economies, amid early Tuesday morning. That said, the Gold price began the week on a negative footing as the US Dollar regained upside momentum while the Treasury bond yields stayed firmer, backed by hopes of no United States default and hawkish Federal Reserve (Fed) expectations. It’s worth noting that the XAU/USD dropped in the last two weeks even as Friday allowed the XAU/USD bears to take a breather after Fed Chair Powell’s cited downbeat credit conditions reducing the need for higher rates.

Gold price remains pressured on firmer US Dollar, yields

Gold price bears the burden of the upbeat US Dollar and United States Treasury bond yields. That said, the US Dollar Index (DXY) regained upside momentum on Monday after a downbeat close at the end of the two-week winning streak by Friday, inactive of late. With this, the greenback’s gauge versus the six major currencies ended the day around 103.23, making rounds to the same level by the press time.

On the same line, the US 10-year and two-year Treasury bond yields remain indecisive around the highest levels in 10 weeks after rising for the last seven consecutive days, around 3.72% and 4.32% at the latest.

Underpinning the US dollar and yields are the fresh hawkish concerns about the Federal Reserve (Fed) and optimism for a deal over the debt ceiling, which in turn weighs on the Gold price.

Recently, US President Joe Biden said that he believed they will make some progress on the debt ceiling talks while House Speaker Kevin McCarthy said, “We both believe we need to change the trajectory.”

On Monday, US President Joe Biden conveyed positive developments while talking to US House Speaker and Republican Kevin McCarthy as he left Japan after the Group of Seven (G7) Nations meeting in Hiroshima. The policymaker also suggested the talks will resume tomorrow. However, US House Speaker McCarthy showed rejection to mark progress over a deal over the debt ceiling until US President Biden stays abroad. Given the cautious optimism about the US policymakers’ ability to avoid the US debt payment default, the Gold price remains less lucrative, especially amid firmer USD and yields.

Additionally, during an interview with CNBC on Monday, Minneapolis Federal Reserve President Neel Kashkari cited the even odds favoring the increase in the policy rate one more time in June or pausing. It should be noted that Fed’s Kashkari spread fears of the US default and resulting economic pain while saying that the Fed cannot protect the US economy from a debt default. With this, the XAU/USD traders fear higher rates and recall the sellers after a corrective bounce on Friday.

On the same line, St. Louis Federal Reserve President James Bullard ruled out the recession concerns on Monday while saying that He sees two more rate hikes this year before reaching the base rate.

Furthermore, Atlanta Fed President Raphael Bostic, Richmond Fed President Thomas Barkin and San Francisco President Mary C Daly recently backed the calls for higher rates.

While quoting the market’s concerns about the Fed’s next move, the CME Group’s FedWatch Tool shows that markets are again indecisive after the latest Fed talks, especially driven by Fed Chair Powell’s concern for the credit crisis and resulting less pressure for rate hikes. The same signals the market’s pricing in of a rate hike in June, as well as pushing back the rate cuts until late 2023. Additionally, the National Association for Business Economics (NABE) survey showed that economists have deferred their expectations of a US Federal Reserve (Fed) rate cut to the first quarter of next year.

Hence, the Gold price remains on the back foot amid optimism about the US debt ceiling and hawkish Fed concerns.

China fears also weigh on XAU/USD

Apart from the US debt ceiling woes and hawkish Fed, fears surrounding one of the world’s biggest Gold consumers, China also weighs on the XAU/USD. That said, China faced the heat of the Group of Seven Nations (G7) summit in Hiroshima as the global leaders discussed de-risking, or weaning themselves off an over-reliance on Chinese imports at the summit.

Even so, the dragon nation banned imported chips from US manufacturer Micron, after terming them a security threat, which in turn gave rise to a situation where Washington and Beijing exchanged harsh words.

However, US President Joe Biden said that the US-Sino relations to improve ‘very shortly’ whereas China's Commerce Minister Wang Wentao mentioned during a seminar for US firms investing in China that they Will continue to welcome US firms to develop in China.

Gold price to have an active day ahead

Gold Price may witness a busy day filled with multiple Purchasing Managers Indexes for May, from the UK, Euro, Japan, Australia and the US. Should the first readings of the activity data for May remain impressive, especially from the US, the XAU/USD may witness further downside.

Also read: US S&P Global PMIs Preview: Dollar set to rise on a slip in the services sector

Gold price technical analysis

A clear downside break of the 50-DMA and a sustained observance of the 13-day-old descending resistance line, around $1,990 and $1,985 by the press time, keep the Gold price sellers hopeful.

Adding strength to the bearish bias surrounding the XAU/USD are the bearish signals from the Moving Average Convergence and Divergence (MACD) indicator and steady Relative Strength Index (RSI) line, placed at 14.

As a result, the Gold price is likely to decline further, which in turn highlights the latest swing low of around $1,952 ahead of directing the XAU/USD sellers toward the 100-DMA support of near $1,930.

Meanwhile, an upside break of the aforementioned resistance line and the 50-DMA, near $1,984 and $1,990 in that order, becomes necessary for the Gold buyers to take the risk.

Following that, the $2,000 round figure and April’s high of around $2,049 can challenge the XAU/USD bulls.

Overall, the Gold price is likely to remain bearish but the downside appears unimpressive beyond the 100-DMA support of near $1,930.

Gold price: Daily chart

Trend: Further downside expected