Gold Price Forecast: XAU/USD drops to $1,660 area amid stronger USD, rising US bond yields

• Gold comes under renewed selling pressure on Tuesday amid resurgent USD demand.
• Aggressive Fed rate hike bets lift the US bond yields and continue to underpin the buck.
• The risk-off impulse fails to lend support to the XAU/USD ahead of the FOMC meeting.

Gold meets with a fresh supply on Tuesday and extends its steady intraday descent through the early North American session. The XAU/USD is currently placed around the $1,660 level, down nearly 0.90% for the day, and remains well within the striking distance of its lowest level since April 2020 touched on Friday.

The US dollar catches aggressive bids and makes a solid comeback from a one-week low, which, in turn, is seen as a key factor exerting downward pressure on the dollar-denominated commodity. The Federal Reserve is widely expected to deliver a third successive super-sized 75 bps rate hike at the end of a two-day policy meeting on Wednesday. The markets have also been pricing in a smaller chance of a full 100 bps rate increase, which remains supportive of elevated US Treasury bond yields and continues to act as a tailwind for the buck.

In fact, the yield on the rate-sensitive two-year US government bond stands tall near its highest level since November 2007. Adding to this, the benchmark 10-year Treasury note reaches a level not seen since April 2011, which is seen as another factor that contributes to driving flows away from the non-yielding yellow metal. The intraday downfall seems rather unaffected by the risk-off impulse, which tends to offer some support to the safe-haven gold. This, in turn, suggests that the path of least resistance for the XAU/USD is to the downside.

Apart from the highly-anticipated FOMC decision, the focus will be on the updated economic projections, the so-called dot plot and Fed Chair Jerome Powell's comments at the post-meeting press conference. Investors will look for clues about the future rate hike path, which will influence the near-term USD price dynamics and help determine the next leg of a directional move for gold. Nevertheless, the fundamental backdrop still seems tilted in favour of bearish traders and any attempted recovery move might still be seen as a selling opportunity.

Technical levels to watch