Gold Price Forecast: XAU/USD remains on the defensive amid risk-on, Fed rate-hike jitters

• Gold attracts some dip-buying on Tuesday, though lacks any strong follow-through.
• Retreating US bond yields undermine the USD and offer some support to the metal.
• The risk-on impulse caps the upside amid expectations for aggressive Fed rate hikes.

Gold reverses a modest intraday dip to the $1,729 area and turns neutral during the first half of the European session, though lacks follow-through. The XAU/USD is currently placed around the $1,735 region and so far, has struggled to capitalize on the overnight bounce from over a one-month low.

The US dollar meets with a fresh supply for the second straight day and retreats further from a 20-year high touched the previous day, which, in turn, offers some support to the dollar-denominated gold. The ongoing USD profit-taking slide could be solely attributed to a further decline in the US Treasury bond yields, which further benefits the non-yielding gold.

The upside, however, remains limited amid firming expectations for a supersized 75 bps Fed rate hike at the September meeting. The bets were reaffirmed by Fed Chair Jerome Powell's hawkish remarks on Friday, signalling that interest rates would be kept higher for longer to bring down inflation. This, along with the risk-on impulse, seem to cap gains for gold.

Chinese authorities pledged to stimulate the world’s second-largest economy and boosted investors' confidence. This is evident from a strong rally in the equity markets, which might hold back traders from placing bullish bets around the safe-haven precious metal. This warrants caution before confirming that gold has formed a bottom and positioning for any further gains.

Market participants look forward to the US economic docket - featuring JOLTS Job Openings data and the Conference Board's Consumer Confidence Index later during the early North American session. This, along with the US bond yields, might influence the USD. Apart from this, the risk sentiment might contribute to producing short-term trading opportunities around gold.

The focus, however, will remain on the closely-watched US monthly jobs report, popularly known as NFP, due for release on Friday. The August employment figures will provide some insight into the economy's health in the face of rising rates and stubbornly high inflation. This, in turn, will drive the USD demand and gold prices ahead of the next FOMC meeting in September.

Technical levels to watch