Gold Price Forecast: XAU/USD pares modest intraday gains, hangs just above two-week low

• Gold gains some positive traction on Thursday, albeit lacks follow-through buying.
• Retreating US bond yields, recession fears offer support to the safe-haven XAU/USD.
• Hawkish Fed expectations, a stronger USD should keep a lid on any meaningful upside.

Gold holds on to its modest intraday gains through the early North American session and is currently placed just below the $1,770 region. The attempted recovery from a two-week low touched the previous day, however, lacks bullish conviction and runs the risk of fizzling out rather quickly.

The prevalent cautious mood - as depicted by a softer tone around the equity markets - turns out to be a key factor benefitting the safe-haven gold. The anti-risk flow is reinforced by a modest pullback in the US Treasury bond yields, which offers additional support to the non-yielding yellow metal. That said, some follow-through US dollar buying should hold back bulls from placing aggressive bets around the dollar-denominated commodity and cap gains, at least for the time being.

In fact, the USD shot to a fresh monthly high amid firming expectations that the Fed would continue to tighten its monetary policy. The FOMC minutes released on Wednesday, though did not hint at a particular pace of future rate hikes, indicated that policymakers remain committed to raising interest rates to tame inflation. The bets were further reaffirmed by the incoming better-than-expected US macro data, which remain supportive of the underlying bullish sentiment surrounding the greenback.

The Philly Fed Manufacturing Index jumped to 6.2 in August, surpassing consensus estimates for an improvement to -5 from the -12.3 reported in the previous month. Separately, the US Initial Jobless Claims unexpectedly fell to 250K during the week ended August 12 from the previous week's downwardly revised reading of 252K (262K reported previously). This comes a day after upbeat US consumer spending data and reinforces hawkish Fed expectations, supporting prospects for further USD gains.

The fundamental backdrop suggests that the path of least resistance for gold is to the downside. Even from a technical perspective, the recent repeated failures to find acceptance, or build on the momentum beyond the $1,800 mark favours bearish traders. This, in turn, suggests that any further positive move might still be seen as a selling opportunity and is more likely to remain capped.

Technical levels to watch