Gold Price Forecast: XAU/USD hovers around $1,960 with no clear direction

• XAU/USD faces mild losses at the $1,960 area but is poised for a weekly gain.
• Fed rate-hike pause expectations and fragile market sentiment to act as tailwinds for Gold price.
• Investors eye on FOMC meeting and forward guidance.

The XAU/USD is currently experiencing mild losses around the $1,960 area but it remains poised for a weekly gain. However, the expectations for the pause on rate hikes by the Federal Reserve act as a tailwind for Gold, while rising US bond yields limit its upside potential.

Focus on next week’s US inflation and FOMC meeting

Expectations that Federal Reserve (Fed) will refrain from raising interest rates during its upcoming June 13-14 meeting are restraining USD bulls from making aggressive bets and hence weakening the Greenback. However, recent central banks’ unexpected rate hikes hint at further tightening, which could cap the yellow metal’s upside potential. Markets are pricing in a high probability of a rate hike by the Fed in July, with the chances standing at approximately 85%. Additionally, the likelihood of a rate cut by the end of the year has decreased from 50% at the beginning of the week to around 15%.

US bond yields edged higher on Friday. The 10-year bond yield is trading at 3.75%, while the 2- and 5-year yields stand at 4.60% and 3.92%. As US bond yields could be considered the opportunity cost of holding the yellow metal, higher yields weighed on Gold.

On the other hand, the expectations of a global downturn following China’s Consumer Price Index (CPI) figures worsened the market’s mood. China’s CPI contracted by 0.2% in May, while the Producer Price Index (PPI) experienced its most significant decline since February 2016, falling 4.6% year-on-year and pointing to a slowdown of economic activity.

XAU/USD levels to watch

According to the daily chart, the technical outlook for the XAU/USD remains neutral to bearish. The 20- and 100-day Simple Moving Averages (SMA) seem to be converging towards the $1,950 area to perform a bearish cross. In that case, more downward movements could come into play.

On the downside, the next support levels to watch are the mentioned $1,950 level, followed by the 100-day Simple Moving Average at $1,940 and the $1,920 zone. Conversely, the 20-day Simple Moving Average at $1,965 is key for Gold to gain further traction. If cleared, the price could see a steeper move towards the $1,980 area and then the psychological mark at $2,000.