Gold Price Forecast: XAUUSD seems vulnerable near multi-month low, FOMC awaited

• A combination of factors prompted fresh selling around gold on Wednesday.
• Aggressive Fed rate hike bets, elevated US bond yields acted as a headwind.
• A positive risk tone, bullish USD also contributed to the intraday selling bias.
• The focus remains on the highly anticipated FOMC monetary policy decision.

Gold struggled to capitalize on the overnight bounce from the $1,850 area, or the lowest level since February 16 and edged lower during the first half of trading on Wednesday. The XAU/USD remained on the defensive through the early European session and was last seen trading around the $1,865 region. The markets seem convinced that the Fed would adopt a more aggressive policy response to curb soaring inflation. This was reinforced by elevated US Treasury bond yields and acted as a headwind for the non-yielding yellow metal. Hence, the focus will remain glued to the outcome of a two-day FOMC monetary policy meeting, scheduled to be announced later during the US session.

The Fed is widely expected to raise the benchmark interest rates by 50 bps and lay plans to start reducing its near $9 trillion balance sheet. Apart from this, comments by Fed Chair Jerome Powell will be scrutinized closely to see if the US central bank is ready to hike rates further to curb soaring inflation, even if the economy weakens. This will play a key role in influencing the near-term US dollar price dynamics and provide a fresh directional impetus to the dollar-denominated. Heading into the key event risk, traders might take cues from the US ADP report on private-sector employment and the ISM Services PMI for some impetus during the early North American session.

In the meantime, a generally positive risk tone might hold back traders from placing any bullish bets around the safe-haven gold. Apart from this, the underlying bullish sentiment surrounding the US dollar could exert some downward pressure on spot prices, suggesting that the path of least resistance is to the downside. Even from a technical perspective, sustained break and acceptance below the 100-day SMA support prospects for an extension of the recent rejection slide from the vicinity of the $2,000 psychological mark. Hence, some follow-through decline towards testing a technically significant 200-day SMA support, currently around the $1,835-$1,834 region, remains a distinct possibility.

Key levels to watch