Gold Price Forecast: XAU/USD looks to regain $1,700 as traders brace for Fed

• Gold price begins the key week in a cautious mode, keeping the bounce off yearly low.
• Yields, stocks improved but DXY pares previous gains.
• Absence of Japan, UK joined light calendar to restrict market moves but Fed hawks remained unmoved.
• Pre-Fed anxiety to keep XAU/USD on a dicey ground but US dollar pullback may entertain countertrend traders.

Gold price (XAU/USD) holds onto the recent rebound from the yearly low of around $1,675 as traders brace for major central bank decisions. In addition to the pre-event cautious, a light calendar and quiet macro also contribute to the metal’s inaction during the early Tuesday morning in Asia.

The market began the key week comprising multiple central bank announcements in a dicey mode amid a lack of major updates and bank holidays in Japan and the UK. Also keeping the bullion traders cautious were mixed updates surrounding China and the US dollar’s sluggish performance before Wednesday’s Federal Open Market Committee (FOMC).

The US Dollar Index (DXY) started Monday on a positive footing before downbeat US housing data and hawkish Fed bets raised doubts on the upside gap available for the greenback to react to the Fed’s 0.75% rate hike, which is mostly priced in. That said, the NAHB Housing Market Index fell for a ninth consecutive month to 46 versus 48 expected and 49 prior.

US President Biden said, “I'm more optimistic than I have been in a long time.” The national leader also stated that they are going to get control of inflation. However, US President Biden’s readiness to back Taiwan in case China attacks Taipei and the hawkish hopes for the Fed seemed to weigh on the gold price ahead of the key monetary policy announcements. In a response to US President Biden’s comments, China’s Foreign Ministry said on Monday that Beijing “deplores and firmly opposes this and has lodged stern representations.”

Elsewhere, upbeat covid updates from China, as it unlocked Dalian and Chengdu cities while witnessing zero coronavirus cases in Beijing and one, versus zero the previous day, outside Shanghai’s quarantine zone, favored the risk appetite. China’s Premier Li Keqiang told the state media on Monday that the Chinese economy maintains a recovering trend overall, as reported by Reuters. Earlier on Monday, China’s State Planner, National Development and Reform Commission said, “Foundation of domestic economic recovery is still weak despite positive changes in main economic indicators.”

Amid these plays, Wall Street closed positive and the US Treasury yields refreshed cycle tops but the DXY remains pressured.

Moving on, a few more US housing data and the full markets will entertain the XAU/USD traders ahead of the key Wednesday. Given the already priced-in Fed rate hike, the gold price may witness a recovery in case the FOMC fails to provide any major hawkish reason to back the monetary policy tightening.

Technical analysis

Gold justifies the upside break of a four-day-old descending resistance line, now support around $1,670, to aim for the support-turned-resistance line from September 01, around $1,698 by the press time. Also acting as an upside filter is the 200-HMA hurdle surrounding the $1,700 threshold.

It’s worth noting that the RSI (14) is speedily approaching the overbought territory and the metal’s upside past the $1,700 threshold appears difficult.

That said, a pullback move below the $1,670 previous support could quickly fetch the XAU/USD price towards the recently flashed yearly low surrounding $1,655.

In a case where the gold price remains bearish past $1,655, the April 2020 low surrounding $1,570 will gain the market’s attention.

Gold: Hourly chart

Trend: Limited upside expected