Gold Price Forecast: XAU/USD falls to more than 2-year low as USD continues to strengthen

• Gold drops to over a two-year low on Friday as the USD rally remains uninterrupted.
• Bets for more aggressive Fed rate hikes, elevated US Bond yields underpin the buck.
• Geopolitical risks, the risk-off mood could lend some support to the safe-haven metal.
• A trading range breakdown supports prospects for an extension of the depreciating move. 

Gold drops to its lowest level since April 2020, around the $1,641 area on Friday and confirms a fresh breakdown below a one-week-old trading range. The XAU/USD maintains its offered tone through the early North American session and seems vulnerable to slide further.

The relentless US dollar buying remains unabated on the last day of the week amid expectations for a more aggressive policy tightening by the Fed. In fact, the USD Index, which measures the greenback's performance against a basket of currencies, hits a fresh 20-year peak and is seen driving flows away from the dollar-denominated gold.

The US central bank earlier this week signalled that it will hike interest rates at a faster pace to combat stubbornly high inflation. A number of other major central banks also delivered rate increases this week, which continues to lift government bond yields. This exerts additional downward pressure on the non-yielding gold.

That said, the risk of a further escalation in the Russia-Ukraine conflict offers some support to the safe-haven precious metal. Russian President Vladimir Putin announced an immediate partial military mobilization, which, along with recession fears, continues to weigh on investors' sentiment and could limit losses for gold.

From a technical perspective, a sustained break below the previous YTD low, around the $1,654-$1,653 region could be seen as a fresh trigger for bearish traders. This might have already set the stage for additional losses. Hence, a subsequent slide towards the next relevant support, around the $1,600 mark, remains a distinct possibility.

Technical levels to watch