- Gold drops to over a one-week low on Monday amid some follow-through USD buying interest.
- A fresh leg up in the US Treasury bond yields continues to offer some support to the greenback.
- The risk-off impulse could come in and support the safe-haven XAU/USD ahead of the FOMC.
Gold edges lower for the third successive day on Monday and drops to over a one-week low, around the $1,635 region during the first half of the European session. The US dollar builds on last week's late rebound from over a one-month low and turns out to be a key factor exerting downward pressure on the dollar-denominated commodity. The downside, however, seems limited as traders might prefer to move to the sidelines ahead of the highly anticipated FOMC monetary policy meeting this week.
The Fed is scheduled to announce its decision on Wednesday and is widely expected to deliver another supersized 75 bps rate hike. That said, signs of a slowdown in the US economy might force the Fed to soften its hawkish stance. Hence, the focus will be on the accompanying policy statement and the post-meeting press conference. Investors will look for clues about the Fed's future rate hike path, which will influence the near-term USD price dynamics and provide a fresh directional impetus to the non-yielding gold.
In the meantime, a fresh leg up in the US Treasury bond yields should act as a tailwind for the buck and weigh on the XAU/USD. However, the risk-off impulse could lend some support to the safe-haven gold, at least for the time being. Weaker-than-expected Chinese business activity data released earlier this Monday revives fears about a deeper global economic downturn and tempers investors' appetite for riskier assets. This is evident from a weaker tone around the equity markets and warrants caution for bearish traders.
Nevertheless, the fundamental backdrop suggests that the path of least resistance for gold is to the downside and any attempted recovery move could be seen as a selling opportunity. In the absence of any major market-moving economic releases, the USD remains at the mercy of the US bond yields. This, along with the broader market risk sentiment, could allow traders to grab short-term opportunities around the XAU/USD.
Technical levels to watch
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