Gold Price Forecast: XAU/USD remains on the defensive, downside seems cushioned

• Gold edged lower on Monday amid modest USD strength and an uptick in the US bond yields.
• Recession fears weighed on investors’ sentiment and offered some support to the XAU/USD.
• The focus remains glued to the FOMC decision and this week’s important US economic data.

Gold kicked off the new week on a softer note and moved further away from over a one-week high, around the $1,739 region touched on Friday. The XAU/USD, however, managed to recover a bit from the daily low and was last seen trading with modest intraday losses, just above the $1,725 level.

The prospects for a more aggressive policy tightening by major central banks failed to assist gold to capitalize on last week's bounce from the $1,680 region, or its lowest level since March 2021. Apart from this, an uptick in the US Treasury bond yields helped revive the US dollar demand and exerted some downward pressure on the dollar-denominated commodity.

The downside, however, remains cushioned amid the prevalent risk-off environment, which tends to underpin the safe-haven gold. The market sentiment remains fragile amid worries about a global economic downturn. The concerns were fueled by the disappointing release of the flash PMI prints from the Eurozone and the US on Friday, which tempered investors' confidence.

Furthermore, investors now expect that a US recession would force the Fed to slow its aggressive policy tightening path. This was evident from the recent sharp decline in n the US Treasury bond yields, which further offered some support to the non-yielding gold. Hence, the focus would remain on the outcome of a two-day FOMC meeting, scheduled to be announced on Wednesday.

Traders will further take cues from this week's important US macro data, starting with the release of the Conference Board's US Consumer Confidence Index on Tuesday. This would be followed by the Advance US Q2 GDP report on Thursday. This, along with the Fed's policy outlook, should influence the near-term USD price dynamics and provide a fresh directional impetus to gold.

In the meantime, the US bond yields would play a key role in driving the USD demand and provide some impetus to the XAU/USD amid absent relevant market-moving US economic releases on Monday. Apart from this, the broader market risk sentiment could provide some impetus and allow traders to grab short-term opportunities around gold.

Technical levels to watch