Gold Price Forecast: XAUUSD sticks to modest gains, upside potential seems limited

• Gold gained some positive traction on Tuesday and snapped a two-day losing streak.
• A softer risk tone was seen as a key factor offering support to the safe-haven XAUUSD.
• Expectations of aggressive global central banks and modest USD strength capped gains.

Gold attracted some buying near the $1,837 region on Tuesday and for now, seems to have stalled the recent pullback from a nearly one-month high touched last week. The uptick allowed spot prices to snap a two-day losing streak and was sponsored by a softer risk tone, which tends to benefit the safe-haven precious metal. The market sentiment remains fragile amid concerns that a more aggressive move by major central banks to constrain inflation could pose challenges to global economic growth. That said, expectations for more interest rate hikes in the US and Europe held back traders from placing aggressive bullish bets around the non-yielding yellow metal.

Investors seem worried that the global supply chain disruption caused by the Russia-Ukraine war would continue to push consumer prices higher and force the Fed to tighten its monetary policy at a faster pace. The European Central Bank is also expected to join its global peers and hike interest rates to tamp down inflation. This, along with modest US dollar strength, might further contribute to keeping a lid on any meaningful upside for the dollar-denominated gold. The USD drew support from the recent strong rally in the US Treasury bond yields. In fact, the yield on the benchmark 10-year US government bond shot back above the 3.0% threshold amid worries about persistent inflation.

Hence, the focus will remain glued to the crucial US CPI report, scheduled for release on Friday, which will influence the Fed's policy tightening path. This will help determine the next leg of a directional move for the USD and gold. In the meantime, the US bond yields will continue to play a key role in driving the USD price dynamics amid absent top-tier US economic releases and provide some impetus to gold. Apart from this, traders will further take cues from the broader market risk sentiment to grab short-term opportunities around the XAUUSD.

Technical levels to watch