Gold price weakens further below $1,700, seems vulnerable near one-year low

• Gold price witnessed selling for the second straight day and dropped to a nearly one-year low.
• The prospects for a further rise in interest rates continued to drive flows away from the metal.
• A positive risk tone exerted additional pressure; modest USD weakness failed to lend support.

Gold price is extending the overnight breakdown momentum below the $1,700 mark and continued losing ground for the second successive day on Thursday. The downward trajectory dragged the XAUUSD to its lowest level since August 2021, around the $1,689-$1,688 region during the early European session.

Gold price weighed down by hawkish central banks

The prospects for more interest rate hikes by major central banks turned out to be a key factor that contributed to driving flows away from the non-yielding gold. The European Central Bank is all set to raise interest rates for the first time since 2011 on Thursday. A Reuters report indicated earlier this week that policymakers might discuss a jumbo 50 bps rate hike move to tackle soaring inflation. The Federal Reserve is also expected to raise rates by another 75 bps at its policy meeting on July 26-27.

The Bank of England Governor Andrew Bailey also raised the possibility of increasing interest rates by 50 bps in August and said that the central bank has an absolute priority to bring inflation back down to its 2%. Furthermore, the minutes from the Reserve Bank of Australia policy meeting released on Tuesday revealed that additional increases in interest rate will be needed to return inflation to the target over time. This, in turn, continued weighing on the gold price, which pays no interest.

Also read: Gold Price Forecast: Will the ECB rescue XAUUSD bulls?

Positive risk tone exerted additional pressure

The recent recovery in the global risk sentiment was seen as another factor that undermined the gold price. Investors have been scaling back bets on a 100 bps Fed rate hike move in July. Apart from this, the resumption of Russian gas supply via the Nord Stream 1 pipeline helped ease fears about a possible recession and boosted investors' confidence. This was evident from a generally positive tone around the equity markets, which tends to dent demand for traditional safe-haven assets.

Gold bars

Weaker USD failed to lend support

The US dollar struggled to capitalize on the previous day's bounce from its lowest level since July and met with a fresh supply amid diminishing odds for a more aggressive policy tightening by the Fed. A weaker greenback, however, did little to lend any support to the dollar-denominated commodity or stall the ongoing downfall. This, in turn, suggests that the path of least resistance for the gold price is to the downside and any attempted recovery could still be seen as a selling opportunity.

Gold price technical outlook

Gold price has now found acceptance below the $1,700 round-figure mark and seems vulnerable to slide further. Some follow-through selling below the August 2021 low, around the $1,687-$1,686 region, would reaffirm the negative bias and drag the XAUUSD to the $1,677-$1,676 area. The latter represents the 2021 year low and is followed by the $1,670 horizontal support, below which the metal is likely to prolong its downward trajectory.

On the flip side, any meaningful recovery beyond the $1,700 mark is likely to attract fresh sellers and remain capped near the $1,710-$1,712 supply zone. The next relevant hurdle is pegged near the $1,725-$1,726 region, which if cleared could trigger a bout of a short-covering. The gold price could then aim to surpass the $1,734-$1,735 horizontal resistance and test the $1,749-$1,752 strong barrier.

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