Gold Price Forecast: XAU/USD treads water as hopes of Fed slowdown offset stronger USD

• Gold retreats from over a one-week high set on Monday amid the emergence of some USD buying.
• Retreating US bond yields is a headwind for the greenback and extends support to XAU/USD.
• The prospects for aggressive rate hikes by other major central banks should cap the yellow metal.

Gold attracts fresh selling near the $1,670 area, or over a one-week high touched earlier this Monday, though the downside remains cushioned, at least for the time being. The US dollar is back in demand on the first day of a new week and turns out to be a key factor exerting downward pressure on the dollar-denominated commodity. That said, a further pullback in the US Treasury bond yields acts as a headwind for the greenback and lends some support to the non-yielding gold. The yield on the benchmark 10-year US government bond retreats further from a 15-year high in the wake of a report that some Fed officials are signalling more significant unease with oversized rate hikes.

Nick Timiraos, the chief economics correspondent at The Wall Street Journal, highlighted that the Fed is likely to debate on whether and how to signal plans to approve a smaller increase in December. The article also indicated that some policymakers want to stop raising rates early next year to see how their moves this year are slowing the economy and to reduce the risk of causing an unnecessarily sharp slowdown. This introduces uncertainty over the pace of the Fed's rate-hiking cycles, which, in turn, drags the US bond yields lower and could keep a lid on any further gains for the buck. The Fed, however, is still expected to continue to tighten its monetary policy to tame inflation.

Furthermore, the prospects for more aggressive rate hikes by other major central banks, including the European Central Bank and the Bank of England, should cap the upside for gold. Apart from this, a generally positive risk tone might further hold back traders from placing fresh bullish bets around the safe-haven precious metal. The mixed fundamental backdrop makes it prudent to wait for solid follow-through buying before confirming that XAU/USD has formed a near-term bottom and positioning for any further appreciating move. Market participants now look to the flash PMI prints from the Eurozone, the UK and the US to grab short-term trading opportunities around the XAU/USD.

Technical Outlook

From a technical perspective, any subsequent strength beyond the Asian session swing high, around the $1,670 area, is likely to confront stiff resistance near the $1,680-$1,682 supply zone. Some follow-through buying should allow gold to aim back to reclaim the $1,700 round-figure mark. The positive momentum could get extended and lift spot prices towards retesting monthly peak, around the $1,730 region.

On the flip side, the $1,643-$1,642 area seems to protect the immediate downside ahead of the $1,637 zone. This is followed by the $1,620 level and the YTD low, around the $1,617-$1,614 region, which if broken decisively will be seen as a fresh trigger for bearish Traders. Gold might then accelerate the fall towards challenging the $1,600 round figure before extending the downward trajectory towards the $1,580-$1.575 support.