Gold Prices Gain as US Dollar Resumes Drop, XAU/USD Bounces off Channel Support

GOLD PRICES FORECAST

• Gold prices regain ground on U.S. dollar weakness following a subdued performance on Monday
• XAU/USD rebounds after encountering technical support at the lower bound of an ascending channel
• This article looks at key tech levels to watch in the near term

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After a subdued performance at the start of the week, gold prices (XAU/USD) rebounded on Tuesday, supported by cautious sentiment and, more importantly, a weaker U.S. dollar, a situation that increases demand for the precious metal by making it more affordable for international buyers.

While day-to-day fluctuations can be difficult to predict, gold retains a bullish profile over the medium term, despite its already notable rally in 2023. For context, XAU/USD has risen more than 10% this year, breaking one technical resistance after another and flirting with recapturing its all-time high.

Looking ahead, the fact that the Fed is winding down its tightening campaign imminently should be seen as a positive catalyst for bullion. Typically, after the Fed delivers its final hike of the cycle and pauses, rates begin to fall across the Treasury curve. This could favor non-yielding assets.

Another potential tailwind is the deteriorating health of the U.S. economy. Although activity has been resilient, the outlook remains challenging and surrounded by an exceptional degree of uncertainty, especially after last month’s banking sector turmoil.

If credit conditions worsen dramatically heading into the summer in response to the fallout from the failure of regional banks, the country may be headed for a downturn. A recessionary environment could bolster demand for safe-haven assets, further boosting gold prices.

From a technical perspective, XAU/USD encountered support at the lower bound of an ascending channel near the $2,000 level on Monday, and managed to stage a rebound off of that region. If gains accelerate in the coming days, initial resistance lies at $2,060, followed by $2,075, the all-time high.

On the flip side, sellers resurface and push prices lower, the first technical floor to keep in mind rests around the psychological $2,000 mark. If this support is breached, we could see pullback towards $1,975. On further weakness, the focus shifts to $1,940.

GOLD PRICES TECHNICAL CHART

Gold Futures Technical Chart Prepared Using Trading View