Gold Price Forecast: XAU/USD bulls approach $1,660 hurdle as yields weigh on DXY, FOMC eyed

• Gold price remains mildly bid as US dollar stays pressured ahead of Fed announcements.
• Risk-positive headlines from China, downbeat US Treasury yields also propel XAU/USD.
• Fed’s dovish hike could please the bullion buyers.

Gold price (XAU/USD) prints mild gains around the mid-$1,600s as the US dollar stays weak ahead of the Federal Open Market Committee (FOMC) meeting on Wednesday. In addition to the pre-Fed anxiety, softer yields and cautious optimism in the market also favor the gold buyers of late.

That said, the US Dollar Index (DXY) takes offers to refresh its intraday low near 111.35, stretching the previous day’s pullback from a one-week high, amid indecision over the Fed’s next move. Also exerting downside pressure on the greenback’s gauge versus the six major currencies, as well as fueling XAU/USD prices, could be the recent weakness in the US Treasury yields and the upbeat headlines from China, a major consumer of gold.

US 10-year Treasury yields drop two basis points (bps) to 4.03% at the latest as traders remain divided over the US central bank’s next move given the 75 bps rate hike and hopes favoring easy rate lifts from December.

It should be noted that the Governor of the People’s Bank of China (PBOC), Yi Gang, recently crossed wires and stated that China's economy remains broadly on track. “We hope the housing market can achieve a soft landing,” added the policymaker. Additionally, an official from the China Banking and Insurance Regulatory Commission (CBIRC) also helped improve the mood while saying that the property sector is now "stable".

Even so, the previous day’s firmer US data and the hawkish Fed bets, as per the CME’s FedWatch Tool, challenge the XAU/USD buyers. That said, the S&P 500 Futures print mild gains even as Wall Street closed negative.

Moving on, the market’s cautious optimism could help the gold price to remain firmer but the smaller moves are likely to be seen ahead of the FOMC. In that, the Fed’s dovish hike could escalate the XAU/USD run-up.

Technical analysis

Gold price extends the previous day’s bounce off a five-week-old ascending trend line, around $1,634 by the press time, amid sluggish MACD and RSI (14). As a result, the XAU/USD bulls appear unsure and need validation to extend the latest rebound.

That said, a one-month-old descending resistance line and the 21-DMA, respectively near $1,658 and $1,660, hold the keys to the metal’s further upside.

Following that, the 50-DMA could act as the last defense of the gold bears around $1,680 before directing them to the previous monthly top near $1,730.

On the flip side, pullback moves need to conquer the aforementioned support line near $1,634 to aim for the fresh yearly low, currently near $1,614.

Gold: Daily chart

Trend: Limited upside expected