Gold Price Forecast: XAU/USD retreats to $1,650 level amid a pickup in USD demand

• Gold struggles to capitalize on its early uptick amid the emergence of some USD dip-buying.
• Aggressive Fed rate hike bets, elevated US bond yields act as a tailwind for the greenback.
• Growing recession fears offer some support to the XAU/.USD and helps limit the downside.

Gold surrenders its modest intraday gains to the $1,660 zone and retreats to the lower end of its daily trading range during the first half of the European session. Currently hovering around the $1,650 area, the emergence of some US dollar dip-buying is seen as a key factor weighing on the dollar-denominated commodity.

In fact, the USD Index, which measures the greenback's performance against a basket of currencies, rebounds swiftly from a one-and-half-week low touched earlier this Tuesday. The prospects for a more aggressive policy tightening by the Fed, reaffirmed by hotter US consumer inflation figures released last week, remain supportive of elevated US Treasury bond yields. This, in turn, assists the greenback to regain positive traction and drives flows away from the non-yielding gold.

Apart from this, a V-shaped recovery in the global risk sentiment - as depicted by the ongoing strong follow-through rally in the equity markets - further undermines the safe-haven XAU/USD. The downside, however, remains cushioned, at least for the time being, amid worries about a deeper global economic downturn. Rapidly rising borrowing costs, along with geopolitical risks and China's strict zero-COVID policy, have been fueling recession fears and should cap the optimism.

The mixed fundamental backdrop warrants some caution before placing aggressive directional bets, though the metal's inability to gain any meaningful traction favours bearish traders. Furthermore, the recent repeated failures near the $1,680-$1,682 supply zone suggest that the path of least resistance for gold is to the downside. Hence, any move up back towards the said barrier could be seen as a selling opportunity and runs the risk of fizzling out rather quickly.

Market participants now look forward to the US economic docket, featuring the release of Industrial Production data and Capacity Utilization Rate. This, along with the US bond yields, will influence the USD price dynamics and provide some impetus to gold. Apart from this, traders will take cues from the broader market risk sentiment to grab short-term opportunities around the XAU/USD.

Technical levels to watch