Gold Price Forecast: XAUUSD remains stuck in a range above $1,700, bearish potential intact

Gold price continued with its struggle to gain any meaningful traction and oscillated in a narrow band, above the $1,700 round-figure mark. This marked the third successive day of subdued price action and was sponsored by a combination of diverging forces. A big drop in the US dollar index offered some support to the dollar-denominated commodity, though the prospects for a more aggressive move by major central banks acted as a headwind.

The USD prolonged its corrective pullback from a two-decade high and languished near a two-week low as investors trimmed their bets for a massive 100 bps rate hike move by the Federal Reserve in July. In fact, several FOMC members signalled last week that they will likely stick to a 75 bps rate increase at the upcoming policy meeting. Tuesday's mixed release of the US housing market data failed to impress the USD bulls or provide any meaningful impetus to the gold price. Investors, however, seem convinced that the recent surge in US consumer inflation to a four-decade high would force the Fed to deliver a larger rate hike later this year. This, in turn, remained supportive of elevated US Treasury bond yields.

The European Central Bank (ECB), meanwhile, reportedly will discuss whether to raise interest rates by 25 bps or 50 bps to tame inflation at its upcoming policy meeting on Thursday. Adding to this, the minutes from the Reserve Bank of Australia policy meeting released on Tuesday indicated that further increases in interest rate will be needed to return inflation to the target over time. Furthermore, Bank of England Governor Andrew Bailey said that a 50 bps increase will be among the choices on the table at the next meeting. This comes on the back of a series of more hawkish central bank actions recently and kept a lid on any meaningful upside for the non-yielding gold, warranting caution for bullish traders.

Apart from this, a goodish recovery in the global risk sentiment - as depicted by a positive tone around the equity markets - further contributed to capping the upside for the safe-haven gold. Results from a number of major US banks generally have been solid. This, along with the recent fall in oil prices and news that the Nord Stream1 pipeline would likely restart gas flows to Europe on time after its annual maintenance, boosted investors' appetite for riskier assets. That said, persistent recession fears should cap any optimistic move in the markets and hold back traders from placing aggressive bearish bets around the XAUUSD. Investors also seemed reluctant and preferred to wait on the sidelines ahead of the key central bank event risks - the Bank of Japan and the ECB monetary policy decision on Thursday.

In the meantime, traders on Wednesday might take cues from the latest consumer inflation figures from the UK and Canada. The US economic docket features the release of Existing Home Sales, which, along with the US bond yields, might influence the USD price dynamics. Apart from this, the broader market risk sentiment might provide some impetus to the gold price and allow traders to grab short-term opportunities.

Technical Outlook

Given the recent fall to a nearly one-year low, the range-bound price action might still be categorized as a bearish consolidation phase. This, in turn, suggests that the near-term bearish trend might still be far from being over and that the risks remain skewed to the downside. Hence, any positive move beyond the $1,725-$1,726 immediate resistance could be seen as a selling opportunity. This, in turn, should cap the gold price near the $1,734-$1,735 horizontal resistance. Some follow-through buying might trigger a bout of short-covering and lift the XAUUSD towards the $1,749-$1,752 supply zone.

On the flip side, the $1,700 region, nearly last week's swing low, might continue to act as immediate support. A convincing break below would make the XAUUSD vulnerable and pave the way for a slide towards the September 2021 low, around the $1,687-$1,686 region. Gold price could then extend the downward trajectory and eventually drop to test the 2021 yearly low, near the $1,677-$1,676 area.