Gold Price Forecast: XAU/USD fades recovery below $1,700 as hawkish Fed bets precede FOMC Minutes

• Gold price retreat from intraday high, probes five-day downtrend at weekly low.
• Chatters over BOE, Japan recently underpinned XAU/USD’s corrective bounce.
• Economic fears, market’s pricing of Fed’s next move challenge metal buyers.
• Minutes should unveil policymakers’ determination for further rate hikes to please gold sellers.

Gold price (XAU/USD) struggles to defend the first daily gains in six around $1,668 heading into Wednesday’s European session as sluggish markets keep the metal bears hopeful ahead of the key Federal Open Market Committee (FOMC) Meeting Minutes.

The fresh chatters about money market intervention by Japanese policymakers and the Bank of England’s (BOE) hint to extend a surprise bond-buying program, as signaled by the Financial Times (FT), recently triggered the yellow metal’s corrective bounce. Also likely to favor the XAU/USD prices could be the hopes of further stimulus from Europe and China as both nations try hard to shrug off recession woes.

Sluggish US Treasury yields around the multi-month high also teased the gold buyers at the one-week low. That said, the US 30-year Treasury yields remain sidelined near 3.91% after rising to the highest level since 2014 the previous day. On the same line is the US 2-year bond coupons that seesaw around 4.28%, down for the second consecutive day.

It should be noted, however, that the economic fears spread by the International Monetary Fund (IMF) and the hawkish Fed bets appear to keep the metal sellers hopeful ahead of the all-important Fed Minutes. Herein, the XAU/USD bears will cheer witnessing the policymakers’ readiness for further rate hikes, like those recently signaled by Cleveland Fed President Loretta Mester.

As per the latest readings of the CME’s FedWatch Tool, market players are pricing in nearly 81% chance of the Fed’s 75 basis points (bps) of rate hike in November.

In a case where the FOMC Minutes surprise the markets by showing resistance by the committee members in raising the rates amid recession fears, the XAU/USD may extend the latest rebound with more strength.

Technical analysis

The gold price marks another battle with the 50-HMA, after witnessing a defeat the previous day, as buyers cheer firmer RSI (14), as well as the rebound ahead of the 61.8% Fibonacci retracement level of September 28 to October 04 up-moves. Other than the 50-HMA, the 50% Fibonacci retracement level also highlight the $1,672 immediate hurdle.

It should be noted that the 100-HMA pierces off the 200-HMA from above and hints at the quote’s further downside even if the quote crosses the $1,672 resistance. In that case, the weekly resistance line near $1,677 and the HMA convergence around $1,690-91 will be crucial to watch.

Alternatively, the 61.8% Fibonacci retracement level, also known as the golden ratio, restricts immediate XAU/USD downside near $1,658, a break of which could quickly drag the quote towards the late September swing low near $1,641.

Overall, gold price recovery remains elusive unless breaking $1,691.

Gold: Hourly chart

Trend: Further weakness expected