Gold's price has been facing difficulty in staying above the $2000 mark and struggles ahead of the US PCE price index and GDP data due later this week. The key question is what is the outlook for gold and what are the key levels to watch in XAU/USD? The technical outlook for gold is currently neutral, with the path of least resistance remaining sideways to up for the yellow metal until it breaks below key support.
Data released on Friday showed that US business activity rose to an 11-month high in April, indicating that the economy is weathering the surge in interest rates. However, hard data suggests a slowing economy, including the labour market and retail sales, just as credit tightening by banks starts to pinch households and small businesses. This highlights the US GDP growth data for the January-March quarter, which is forecast to have slowed to 2% on-quarter from 2.6% in the previous quarter.
Core inflation measures, including CPI, PCE, and PPI, suggest gradually cooling inflation. The core PCE price index is expected to have eased to 4.5% on-year in March from 4.6% in February. However, any uptick in price pressures could boost US Treasury yields and the US dollar and weigh on gold. Several Fed speakers recently argued for another 25-bps hike, with markets now offering an 89% chance of one more Fed rate hike in May, according to the CME’s FedWatch tool.
Gold's broader trend is up on the daily charts and the 240-minute charts, with recent drift lower indicating a consolidation phase rather than a bearish phase. However, the price action on higher timeframes provides a reason for caution, implying that a breakdown may not be imminent, but the foundations of it are perhaps being laid now. Gold has struggled around a tough hurdle around the 2020 peak of 2072, roughly coinciding with the upper edge of a rising pitchfork channel from late 2022.
XAU/USD momentum continues to be down in the short term, with the focus shifting to key support around 1935-1970. XAU/USD has held above the converged support area, but any break below last week's low of 1970 could expose downside risks towards 1935. On the upside, XAU/USD would need to decisively break above 2072 for the outlook to turn unambiguously bullish.
The forex market and forex traders is closely watching the upcoming US data releases, as they are expected to impact the value of the US dollar, which in turn will have an impact on XAU/USD. Any uptick in price pressures could boost US Treasury yields and the US dollar, weighing on gold. Conversely, a softer-than-expected PCE number could push XAU/USD above the $2000 mark. Traders should pay attention to the market sentiment and adjust their positions accordingly.