Gold Price Forecast: XAU/USD struggles below $1,980 level amid modest US Dollar strength

• Gold price remains depressed for the second successive day amid a modest US Dollar uptick.
• Bets for more rate hikes by Federal Reserve underpin the buck and weigh on the XAU/USD.
• Looming recession risk and a softer risk tone help limit the downside for the safe-haven metal.

Gold price struggles to capitalize on Friday's modest bounce from the $1.970 region and comes under some selling pressure on the first day of the new week. The XAU/USD trades around the $1,977 area during the Asian session and remains well within the striking distance of over a two-week low touched last Wednesday.

Modest US Dollar strength weighs on Gold price

The prospects for further policy tightening by the Federal Reserve (Fed) assists the US Dollar to attract some buying on Monday, which, in turn, is seen as a key factor dragging Gold price lower for the second successive day. In fact, the markets now seem convinced that the Fed will continue raising interest rates to curb high inflation in the United States (US) and have fully priced in a 25 bps lift-off at the next Federal Open Market Committee (FOMC) policy meeting in May. Adding to this, the Fed funds future indicates a small chance of another rate hike in June.

Hawkish Federal Reserve expectations underpin USD

The bets were lifted by the recent hawkish comments by several Fed officials and the incoming positive US macro data, which suggested that the world's largest economy remained resilient. The flash version of S&P Global's PMI survey showed on Friday that the overall business activity in the US private sector expanded at a faster pace in April. The activity in the service sector grew for a third straight month and at the fastest rate in a year, while the gauge for the US manufacturing sector moved into the expansion territory for the first time since October 2022.

Weaker risk tone lends some support to safe-haven XAU/USD

That said, a softer tone around the US Treasury bond yields is holding back the USD bulls from placing aggressive bets and lending support to Gold price. Furthermore, a fresh leg down in the equity markets further contributes to limiting the downside for the precious metal. The prospects for further policy tightening by the Fed fuel worries about economic headwinds stemming from rising borrowing costs, which, in turn, tempers investors' appetite for riskier assets and boosts demand for traditional safe-haven assets, including the XAU/USD.

There isn't any relevant market-moving economic data due for release from the US on Monday, leaving the USD at the mercy of the US bond yields. Apart from this, traders will take cues from the broader risk sentiment to grab short-term opportunities around the Gold price. Nevertheless, the aforementioned fundamental backdrop and the lack of any meaningful buying suggests that the path of least resistance for the XAU/USD is to the downside.

Gold price technical outlook

From a technical perspective, bearish traders might now wait for some follow-through selling below the $1,969 region before positioning for an extension of the recent retracement slide from a one-year high. The Gold price might then slide towards testing the next relevant support near the $1,956-$1,955 area before eventually dropping to the monthly low around the $1,950 region.

On the flip side, any meaningful recovery attempt is likely to attract fresh sellers near the $2,000 psychological mark and remain capped near the $2,010 barrier. A sustained strength beyond the latter might trigger a fresh bout of a short-covering and lift Gold price beyond the $2,020 hurdle, towards the $2,040 horizontal zone en route to the YTD peak, around the $2,047-$2,049 region.

Key levels to watch