Gold Price Forecast: XAU/USD bounces off 100-day SMA, upside potential seems limited

Gold price attracts some buyers near the $1,940 area, representing the 100-day Simple Moving Average (SMA), during the Asian session on Thursday and recovers a part of the overnight slide to a one-week low. The XAU/USD currently trades around the $1,945-$1,946 region and remains well within a familiar trading range held over the past three weeks or so.

Subdued US Dollar acts as a tailwind for Gold price

The US Dollar (USD) struggles to capitalize on the previous day's goodish bounce from the weekly low and turns out to be a key factor lending some support to the Gold price. The downside for the USD, however, seems cushioned amid the uncertainty over the Federal Reserve's (Fed) rate hike path. This, in turn, might hold back traders from placing aggressive bullish bets and act as a headwind for the US Dollar-denominated precious metal.

Federal Reserve’s uncertain rate-hike path caps XAU/USD

Last week's dovish rhetoric by several Fed officials reaffirmed market expectations for an imminent pause in the US central bank's policy tightening cycle. In fact, the current market pricing indicates a greater chance that the Fed will keep rates unchanged at its upcoming policy meeting on June 13-14. That said, the recent inflation and labor market data from the United States (US) kept alive hopes for a 25 basis points (bps) lift-off next week.

Furthermore, surprise rate hikes by the Reserve Bank of Australia (RBA) earlier this week and the Bank of Canada (BoC) on Wednesday suggested that the fight against inflation is not over yet. This, in turn, fueled speculations that the Fed might keep interest rates higher for longer and led to the overnight sharp rise in the US Treasury bond yields, which favours the USD bulls and keep a lid on any meaningful gains for the non-yielding Gold price.

A cautious market mood could lend support to the precious metal

That said, the prevalent cautious mood could lend support to the safe-haven XAU/USD. Dismal Chinese macro data released on Wednesday, showing that trade surplus sank to a 13-month low in May, led by a slump in exports in the wake of weak overseas demand for Chinese goods, continue to weigh on investors' sentiment. Hence, strong follow-through selling is needed to support prospects for an extension of the recent pullback from an all-time high touched in May.

Gold price technical outlook

From a technical perspective, bearish traders still need to wait for a convincing break and acceptance below the 100-day SMA before placing fresh bets. Some follow-through selling below the May monthly swing low, around the $1,932 region, will reaffirm the negative bias and make the Gold price vulnerable to accelerate the fall towards the $1,900 round figure. The downward trajectory could get extended further and drag the XAU/USD towards the $1,876-$1,875 horizontal support en route to the very important 200-day SMA, currently around the $1,839 region.

On the flip side, any meaningful intraday appreciating move is likely to confront stiff resistance near the $1,962-$1,964 region. A sustained strength beyond has the potential to lift the Gold price to the next relevant hurdle near the $1,983-$1,985 supply zone en route to the $2,000 psychological mark. The XAU/USD could eventually climb towards the $2,010-$2,012 supply zone.

Key levels to watch