Gold Price Forecast: XAU/USD bounces back to $1,700 mark, bearish potential intact

• Gold slides back closer to the monthly low, though lack any follow-through selling.
• The relentless USD buying, aggressive Fed rate hike bets weigh on the commodity.
• Recession fears, the risk-off mood offers some support to the safe-haven XAU/USD.

Gold extends the previous day's pullback from a one-week high and continues losing ground through the first half of trading on Wednesday. The third successive day of a negative move drags the XAU/USD further below the $1,700 mark, though stalls just ahead of the monthly low touched last Thursday.

The relentless US dollar buying remains unabated and turns out to be a key factor exerting downward pressure on the dollar-denominated gold. In fact, the USD Index, which measures the greenback's performance against a basket of currencies, hits a fresh two-decade high amid expectations for a more aggressive policy tightening by the Fed.

In fact, the current market pricing indicates over a 70% chance that the Fed will raise interest rates by 75 bps at the upcoming meeting on September 20-21. The bets were reaffirmed by Tuesday's upbeat US ISM Services PMI, which triggered a sell-off in the US government debt market and lifted the yield on the 30-year bond to its highest level since 2014.

Moreover, the yield on the benchmark 10-year US Treasury note surged to levels not seen since June 16. This, in turn, is further offering additional support to the greenback and also contributing to driving flows away from the non-yielding gold. That said, the prevalent risk-off mood helps limit deeper losses for the safe-haven precious metal, at least for now.

The prospects for rapid interest rate hikes, along with the economic headwinds stemming from fresh COVID-19 curbs in China and the ongoing war in Ukraine, have been fueling recession fears. This continues to weigh on investors' sentiment, which is evident from a generally weaker tone around the equity markets and underpins traditional safe-haven assets.

The flight to safety assists gold to bounce back to the $1,700 round-figure mark, though any further recovery still seems elusive. In the absence of any major market-moving economic releases from the US, speeches by Fed officials will play a key role in influencing the USD price dynamics. This, in turn, could produce short-term trading opportunities around the commodity.

Technical levels to watch