Gold Price Forecast: XAU/USD jumps back above $2,000 mark, upside seems limited

Gold price attracts some dip-buying near the $1,977 region on Monday and climbs to a fresh daily high heading into the North American session. The XAU/USD is currently placed just above the $2,000 psychological mark, though remains confined in a familiar trading range held over the past two weeks or so.

Looming recession fears benefit Gold price

The weaker Chinese manufacturing data released on Sunday adds to market worries about economic headwinds stemming from rising borrowing costs and turns out to be a key factor acting as a tailwind for the safe-haven Gold price. In fact, the official Chinese Manufacturing Purchasing Managers' Index (PMI) declined to 49.2 in April from 51.9 previous. This comes on the back of the Advance Gross domestic product (GDP) report released from the United States (US) last week, which showed that the world's largest economy slowed more than expected in the first quarter. Furthermore, factory activity in Japan - the world's third-biggest economy - contracted for the sixth straight month in April and fueled recession fears. This, in turn, weighs on investors' sentiment and drives some haven flows towards the XAU/USD.

Modest US Dollar strength caps gains for Gold price

Apart from this, speculations that the Federal Reserve (Fed) will hold rates steady for the rest of the year beyond May further seem to lend support to the non-yielding Gold price. The markets, however, have fully priced in another 25 basis points (bps) lift-off at this week's Federal Open Market Committee (FOMC) policy meeting, starting on Tuesday. The expectations remain supportive of a modest uptick in the US Treasury bond yields and assist the US Dollar (USD) to gain some positive traction for the third successive day. Adding to this, expectations that the European Central Bank (ECB) could surprise with an outsized 50 bps lift-off on Thursday might hold back traders from placing aggressive bets around the XAU/USD and further contribute to keeping a lid on any meaningful upside, at least for the time being.

The aforementioned fundamental backdrop makes it prudent to wait for strong follow-through buying before positioning for any further appreciating move ahead of the key central bank event risks. The focus will then shift to the release of the closely-watched US monthly employment details on Friday. The popularly known Nonfarm Payrolls (NFP) report will play a key role in influencing the near-term USD price dynamics and determine the next leg of a directional move for the US Dollar-denominated Gold price. In the meantime, traders on Monday will take cues from the release of the US ISM Manufacturing PMI print for April to grab short-term 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 $2,010-$2,012 supply zone, which if cleared decisively will negate any near-term negative bias and prompt some technical buying. The Gold price might then climb to the $2,039-$2,040 region before aiming to challenge the YTD peak, around the $2,048-$2,049 region touched on April 13.

On the flip side, the $1,975-$1,970 zone might continue to protect the immediate downside. A convincing break below the said support will mark a bearish breakdown through a short-term trading range and make the Gold price vulnerable to decline further. The XAU/USD might then accelerate the downfall towards the $1,948 resistance breakpoint, now turned support, en route to the 50-day Simple Moving Average (SMA), currently around the $1,937-$14,936 area.

Key levels to watch