Gold Price Forecast: XAU/USD could retest $1,650 support, as the Fed week kicks in

• Gold price returns to the red amid resurgent USD demand, despite sluggish yields.
• Expectations of aggressive global tightening dampen the market mood.
• Friday’s rebound in XAU/USD opens doors for a renewed downswing.  

Gold price has kicked off the week on a wrong footing this Monday, having faced rejection at $1,680 on its road to recovery. Resurgent demand for the US dollar across the board amid a cautious market tone weighs down on the non-yielding bullion, despite sluggish Treasury yields. Fears have returned to markets over a global recession, as investors gear up for a quartet of central banks’ monetary policy decisions. The Fed is widely expected to announce a 75 bps on Wednesday while the BOE is seen raising rates by 50 bps a day after. However, the Swiss National Bank (SNB) could surprise markets yet again by delivering a full percentage point rate hike on Thursday. The BOJ, however, is expected to leave its policy unchanged, despite mounting pressure on the bank to act amidst the rapid depreciation of the yen.

Concerns that aggressive global tightening could accentuate recession risks continue to underpin the dollar demand at the expense of gold. Further, forecasts of a potential decrease in demand for the bright metal from India, in the face of inflationary pressures and patchy rains, also weigh negatively on the metal. Looking ahead, holiday-thinned market conditions on Monday combined with a data-scarce US docket will investors focussed on the upcoming Fed policy meeting, with the rate hike expectations leading the way.

Also read: Gold Weekly Forecast: Can XAU/USD gain traction on a 75 bps Fed hike?

XAU/USD price renewed two-year lows at $1,654 before rebounding firmly to settle the week at $1,675 on Friday. The narrative of aggressive Fed rate hike expectations continued playing out in the first half of the day, although investors resorted to profit-taking on their short positions in the second half amid re-adjustments ahead of the FOMC decision. The end-of-the-week flows also aided the bullion stage a decent rebound. The dollar pulled back sharply from weekly highs, as the benchmark US 10-year Treasury yields retreated after testing June highs near 3.50%. A less-than-expected improvement in the Michigan Consumer Sentiment Index for September could be linked to the renewed weakness in the greenback and the yields. The UoM 5-year Consumer Inflation Expectation eased to 2.8% in September vs. 2.9% previous.

Gold price technical outlook: Daily chart

The downside bias remains well in place amidst an inverted cup and handle formation and the 14-day Relative Strength Index (RSI) still lurking below the midline.

The immediate support is seen at the previous day’s low of $1,654, below which sellers could aim for the $1.650 psychological level.

Further down, the falling trendline support at $1,629 will be challenged on the way to the pattern target measured at $1,574.

On the flip side, the recovery needs to find a strong foothold above the $1,680 recent highs. The next relevant upside barrier is seen at $1,700.

The bearish 21-Daily Moving Average (DMA) at $1,715 could lure buyers should the renewed upside gain traction.