Gold Price Forecast: XAUUSD recovers from multi-week low, upside potential seems limited

• Gold staged a goodish rebound from a near four-week low touched earlier this Tuesday.
• Retreating US bond yields prompted some USD profit-taking and benefitted the XAUUSD.
• Aggressive Fed rate hike bets could cap the upside for the metal amid the risk-on impulse.

Gold attracted some buying near the $1,810 region and staged a solid rebound from a near four-week low touched earlier this Tuesday. The XAUUSD built on its steady intraday ascent and climbed to the $1,830 area during the early part of the European session, reversing a part of the previous day's steep fall.

Following the recent strong bullish run, the US dollar witnessed some profit-taking from a fresh two-decade peak touched on Monday amid retreating US Treasury bond yields. This, in turn, was seen as a key factor that extended some support to the dollar-denominated gold, though a combination of factors might hold back traders from placing aggressive bullish bets. A turnaround in the global risk sentiment - as depicted by a generally positive tone around the equity markets - could act as a headwind for the safe-haven precious metal. Apart from this, expectations for a more aggressive policy tightening by the Fed might further contribute to capping gains for the non-yielding gold.

The red-hot US consumer inflation figures released on Friday fueled speculations that the Fed would raise interest rates at a faster pace than expected to cool price pressures. In fact, the markets are pricing in a 175 bps of tightening over the next three meetings, implying at least one 75 bps rate hike by September. The expectations lifted the yield on the two-year Treasury note — seen as a proxy for the Fed's policy rate — to a new 15-year high and the benchmark 10-year US government bond to its highest level since April 2011 on Monday. Hence, the focus will remain glued to the outcome of a two-day FOMC monetary policy meeting, scheduled to be announced on Wednesday.

Nevertheless, the fundamental backdrop seems tilted firmly in favour of bearish traders and supports prospects for additional near-term losses. This, in turn, any further move up might still be seen as a selling opportunity and runs the risk of fizzling out rather quickly. In the absence of any major market-moving economic releases from the US, the US bond yields will continue to play a key role in influencing the USD price dynamics. Apart from this, traders might take cues from the broader market risk sentiment to grab short-term opportunities around gold.

Technical levels to watch