Gold Price Forecast: XAU/USD struggles near one-week low amid hawkish Federal Reserve

• Gold price stages a modest recovery from over a one-week low touched earlier this Wednesday.
• Bets for jumbo rate hikes by Federal Reserve, a stronger US Dollar to cap gains for the XAU/USD.
• Traders now look forward to the US labor market data and Powell’s testimony for a fresh impetus.

Gold prices bounces off over a one-week low touched earlier this Wednesday and steadily climbs to the $1,815 region during the first half of the European session. The XAU/USD, for now, seems to have snapped a two-day losing streak, though any meaningful recovery still seems elusive amid rising bets for more aggressive policy tightening by the Federal Reserve (Fed).

Hawkish Federal Reserve expectations to cap gains for Gold price

In the prepared remarks for his semi-annual testimony to Congress, Fed Chair Jerome Powell indicated on Tuesday that interest rates might need to go up faster and higher than previously anticipated. Powell added that the recent economic data from the United States (US) had been stronger than expected and that the Fed is prepared to increase the pace of rate hikes to combat stubbornly high inflation. The markets were quick to react and started pricing in a greater chance of a 50 basis points (bps) lift-off at the upcoming Federal Open Market Committee (FOMC) policy meeting later this month.  This remains supportive of elevated US Treasury bond yields and should act as a headwind for the non-yielding Gold price.

Stronger US Dollar could also act as a headwind for the XAU/USD

In fact, the yield on the benchmark 10-year US government bond holds steady near the 4.0% threshold and the rate-sensitive two-year Treasury note stands tall near its highest level since 2007. This, in turn, assists the US Dollar to build on the previous day's blowout rally and climb to a three-month peak. A stronger Greenback might also contribute to capping the upside for the US Dollar-denominated Gold price. Hence, it will be prudent to wait for strong follow-through buying before placing fresh bullish bets around the XAU/USD and positioning for any further intraday appreciating move. That said, a generally softer risk tone could lend some support to the safe-haven precious metal and help limit the downside.

US labor market data, Powell’s testimony eyed for fresh impetus

The market sentiment remains fragile amid worries about economic headwinds stemming from rapidly rising borrowing costs. Apart from this, fading hopes for a strong economic recovery in China and US-China tensions temper investors' appetite for perceived riskier assets. Market participants now look to the US economic docket, featuring the release of the ADP report on private-sector employment and JOLTS Job Openings data. This, along with Powell's second day of congressional testimony and the US bond yields, will influence the USD. Apart from this, the broader market risk sentiment should provide some impetus to Gold price and allow traders to grab short-term opportunities.

Gold price technical outlook

From a technical perspective, Gold price once again attracts some buyers ahead of the 100-day Simple Moving Average (SMA). The said support, currently pegged near the $1,800 round-figure mark, should act as a pivotal point, which if broken decisively will be seen as a fresh trigger for bearish traders and set the stage for deeper losses. The XAU/USD might then accelerate the fall towards testing the next relevant support near the $1,775 horizontal zone.

On the flip side, the $1,818-$1,820 region could offer some resistance ahead of the $1,835 horizontal zone. A sustained strength beyond the latter could trigger a short-covering rally and lift Gold price back towards the monthly peak, around the $1,858 area touched last Friday. This is followed by the 50-day SMA barrier, currently near the $1,869 region, which should keep a lid on any further gains, at least for the time being. 

Key levels to watch