Gold price struggles to capitalize on the previous day's solid rebound from the 100-day Simple Moving Average (SMA) support near the $1,940-$1,939 area and oscillates in a narrow trading band on Friday. The XAU/USD currently trades near the top end of its weekly range, around the $1,965 region, nearly unchanged for the day heading into the European session.
A modest uptick in the United States (US) government bond yields assists the US Dollar (USD) to attract some dip-buying on the last day of the week and recover a part of the overnight slide to its lowest level since May 24. This, in turn, is seen as a key factor acting as a headwind for the US Dollar-denominated Gold price. The downside remains, however, remains cushioned in the wake of a generally softer risk tone, which tends to benefit the safe-haven XAU/USD.
The market sentiment remains fragile on the back of growing worries about a global economic downturn, fueled by the weaker Chinese inflation figures earlier today. In fact, the National Bureau of Statistics reported that China's Consumer Price Index (CPI) shrank by 0.2% in May, while Producer Price Index (PPI) registered its worst decline since February 2016 and fell 4.6% YoY. This further points to slowing post-COVID recovery in the world's second-largest economy.
Apart from this, firming expectations that the Federal Reserve (Fed) will skip raising interest rates at its June 13-14 meeting hold back the USD bulls from placing aggressive bets and lend support to the non-yielding Gold price. In fact, the markets have fully priced in an imminent pause in the US central bank's rate-hiking cycle. The bets were reaffirmed by Thursday's US data, which showed that Initial Jobless Claims surged to a 20-month high last week.
The Fed funds futures, however, indicate the possibility of another 25 basis point (bps) lift-off at the July Federal Open Market Committee (FOMC) meeting. This, in turn, is holding back traders from placing aggressive bullish bets around the Gold price in the absence of any relevant market-moving economic data. Investors might also prefer to wait on the sidelines ahead of the release of the latest US consumer inflation figures and the FOMC meeting next week.
From a technical perspective, some follow-through buying 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.
On the flip side, the 100-day SMA, currently around the $1.939 area, might continue to protect the immediate downside. A convincing break below will make the Gold price vulnerable to accelerate the fall towards the $1,900 mark. Some follow-through selling should allow bears to target the very important 200-day SMA, currently around the $1,839 area, with some intermediate support near the $1,876-$1,875 horizontal zone.
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