Gold Price Forecast: XAU/USD keeps sight on $1,918 and Fed Chair Powell’s testimony

• Gold price stays vulnerable despite a sharp sell-off in the US Treasury bond yields.
• Strong United States data and risk aversion keep US Dollar underpinned.
• Gold price yields a range breakdown; where next on Fed Chair Jerome Powell’s testimony?

Gold price is treading water near $1,940 this Wednesday, licking its wounds following an extended decline. All eyes now turn toward US Federal Reserve (Fed) Chair Jerome Powell’s testimony amid heightened hawkish rate hike expectations and strong United States economic data. 

United States economic data, weak China Gold demand weigh

Gold price extended its three-day losing streak on Tuesday and almost tested the two-month low of $1,925, having faced a double whammy from upbeat US economic data-led increased hawkish Fed bets on one side. Slowing Chinese demand for Gold also collaborated with the downside in the Gold price on the other hand.

According to data released Tuesday by the Census Bureau, United States Housing Starts Change surged in May, climbing 21.7% from April versus a 0.8% drop expected. Building Permits were up 5.2% from the revised April rate of -1.4% and the expected 5.0% increase. Encouraging US economic data calmed fears over a slowing economy and strengthened expectations of two more Fed rate hikes in the second half of this year, as projected by the Fed’s Dot Plot chart last week. Markets are now pricing a 78% probability of a Fed rate hike next month. Signs of resilience in the US economy provided extra legs to the US Dollar recovery, weighing negatively on the non-interest-bearing Gold.

On China's side of the story, the rapid expansion in retail sales of gold and silver jewelry looks to have topped out, rising 24% year-on-year in May to 26.6 billion yuan ($3.7 billion). That’s slower than the 44% and 37% growth recorded in the previous two months, Bloomberg reported, citing the latest data published by China’s National Statistics Bureau (NBS).

Gold sellers, however, found cushion near $1,930 on account of a sharp sell-off in the US Treasury bond yields across the curve. Risk-off flows dominated on Tuesday in the face of renewed US-Sino tensions and anxiety ahead of Fed Chair Powell’s testimony, which boosted the safe-haven demand for the US government bonds, triggering a steep drop in the US Treasury bond yields across the curve.

Gold price is nursing losses so far this Wednesday, awaiting Fed Chair Jerome Powell’s testimony about the Semi-Annual Monetary Policy Report before the House Financial Services Committee for fresh trading impetus. The Fed’s Monetary Policy Report was already published last Friday. Therefore, the focus will remain on Powell’s Q&A session. Hints at further rate increases from Powell and his take on tightening credit conditions will be closely scrutinized. Apart from Powell, some of his colleagues will also take up the rostrum, making it for busy American trading, despite a lack of high-impact US data releases.

Also in focus will be the United Kingdom’s Consumer Price Index (CPI) inflation data, which comes just a day ahead of the Bank of England’s (BoE) interest rate decision. The data could help markets reprice the BoE rate hike expectations, eventually impacting risk sentiment and, in turn, the US Dollar valuations.

Gold price technical analysis: Daily chart

As observed on the daily chart, Gold price finally broke its one-month-old range to the downside after it closed Tuesday below the critical 100-Daily Moving Average (DMA) at $1,943.

The 14-day Relative Strength Index (RSI) holds comfortably below the midline, keeping the bearish potential intact.

The immediate support is seen at the previous day’s low of $1,930, below which the two-month low of $1,925 will be challenged. A firm break below the latter will fuel a fresh drop toward the March 17 low of $1,918.

Conversely, rebound attempts will meet immediate resistance at the 100 DMA at $1,943. Further up, \daily closing above the 21 DMA support-turned-resistance at $1,953 is critical to a lasting recovery toward the previous week’s high at $1,971.