Gold Price Forecast: XAU/USD drops to one-week low amid stronger USD, Fed rate hike jitters

• Gold remains under heavy selling pressure for the fourth successive day on Monday.
• Aggressive Fed rate hike bets continue to boost the USD and weigh on the XAU/USD.
• The risk-off mood could lend some support ahead of this week’s key event/data risks.

Gold extends last week's retracement slide from the $1,730 region and continues losing ground for the fourth successive day on Monday. The downward trajectory remains uninterrupted through the first half of the European session and drags spot prices to a one-week low, around the $1,678 region in the last hour.

Expectations that the Fed will stick to its aggressive policy tightening path lifts the US dollar to a one-and-half-week high, which, in turn, is seen weighing on the dollar-denominated gold. The robust US monthly jobs report released on Friday pointed to the resilient economy and gives the US central bank enough space to keep hiking rates at a faster pace to combat stubbornly high inflation.

In fact, the markets are now pricing in a greater chance of the fourth consecutive supersized 75 bps rate increase at the next FOMC policy meeting in November. This remains supportive of elevated US Treasury bond yields and further contributes to driving flows away from the non-yielding yellow metal. Hence, the market focus remains on the FOMC minutes and the US consumer inflation data.

Investors will look for fresh clues about the Fed's future rate hike path, which, in turn, will play a key role in influencing the USD and provide a fresh directional impetus to gold. Apart from this, traders, this week will take cues from the US monthly Retail Sales data. In the meantime, the prevalent risk-off mood could limit losses for the safe-haven XAU/USD amid holiday-thinned liquidity.

The market sentiment remains fragile amid worries about economic headwinds stemming from rapidly rising borrowing costs. Apart from this, a further escalation in the Russia-Ukraine conflict and renewed US-China trade jitters temper investors' appetite for riskier assets. That said, the lack of any buying interest around gold suggests that the path of least resistance is to the downside.

Technical levels to watch