Gold Price Forecast: XAU/USD pares intraday gains to one-week high, back below $1,720 level

• Gold regains some positive traction on Tuesday and climbs to a one-week high.
• A modest USD weakness offers support to the dollar-denominated XAU/USD.
• A positive risk tone, aggressive central banks seem to cap gains for the metal.

Gold catches fresh bids on Tuesday and builds on last week's bounce from the $1,689-$1,688 area or the lowest level since July 21. The XAU/USD, however, trims a part of its intraday gains to a one-week high and retreats below the $1,720 level during the early European session.

The US dollar extends its retracement slide from a two-decade high for the second successive day and turns out to be a key factor offering some support to the dollar-denominated commodity. That said, a generally positive tone around the equity markets keeps a lid on any further gains for the safe-haven gold. The global risk sentiment got a lift after the Chinese government vowed more measures to support economic growth.

Apart from this, the prospects for more aggressive rate hikes by major central banks warrant caution before positioning for any meaningful upside for the non-yielding yellow metal. In fact, the Reserve Bank of Australia (RBA) announced a rate hike for the fifth time this year. The Bank of Canada (Boc) and the European Central Bank (ECB) are also expected to raise interest rates on Wednesday and Thursday, respectively.

Furthermore, the markets are betting on a supersized interest rate hike by the Bank of England and the Federal Reserve in September. This, along with a fresh leg up in the US Treasury bond yields, attracts some sellers around gold and leads to an intraday pullback from the $1,727 area, warranting caution for bullish traders.

Market participants now look forward to the US economic docket, featuring the ISM Services PMI later during the early North American session. This, along with the US bond yields, might influence the USD price dynamics and provide some impetus to gold. Traders will further take cues from the broader market risk sentiment to grab short-term opportunities around the XAU/USD.

Technical levels to watch