Gold Price Forecast: XAU/USD bounces off two-week low, Fed rate hike bets to cap gains

• Gold attracted some dip-buying on Monday and stalled its recent corrective pullback.
• Fresh COVID-19 jitters underpinned the safe-haven metal amid persistent inflation fears.
• Hawkish Fed expectations, elevated US bond yields and stronger USD could cap gains.

Gold reversed an Asian session dip to near two-week lows and was last seen hovering near the top end of its daily trading range, just below the $1,850 level. The worsening COVID-19 situation in Europe turned out to be a key factor that benefitted traditional safe-haven assets and assisted the XAU/USD to attract some dip-buying on the first day of a new week. Austria said that it would be the first country in Western Europe to reimpose a full lockdown to tackle rising infections, while Germany warned that it may follow suit. Apart from this, persistent concerns about rising consumer prices further underpinned the precious metal's appeal as a hedge against inflation.

That said, hawkish Fed expectations and a stronger US dollar might keep a lid kept a lid on further gains for gold prices. In fact, the Fed funds futures indicate the possibility for an eventual Fed rate hike move by July 2022 and a high likelihood of another raise by November. The speculations were further fueled by Fed Governor Christopher Waller's comments, saying that the US central bank should speed up the pace of tapering to give more leeway to raise interest rates. The prospects for an early policy tightening by the Fed continued acting as a tailwind for the US Treasury bond yields. This, along with the prevalent bullish sentiment surrounding the US dollar, should hold back traders from placing aggressive bullish bets around the dollar-denominated commodity.

Nevertheless, gold, for now, seems to have stalled its corrective pullback from a multi-month peak set last week and snapped two successive days of the losing streak. In the absence of any top-tier economic releases from the US, the USD price dynamics and US bond yields will continue to play a key role in influencing the non-yielding yellow metal. Traders will further take cues from developments surrounding the coronavirus saga to grab some short-term opportunities around the XAU/USD.

Technical outlook

From a technical perspective, spot prices managed to find some support ahead of the $1,834-32 strong horizontal resistance breakpoint. This should now act as a key pivotal point and help determine the next leg of a directional move. A sustained break below would prompt some technical selling and accelerate the fall towards the $1,808-07 region en-route the $1,800 mark.

On the flip side, some follow-through buying beyond the $1,850 level might trigger a short-covering move and push gold towards the $1,865 resistance zone. The next relevant hurdle is pegged near the $1,875-77 area (multi-month highs), above which the XAU/USD could aim to reclaim the $1,900 mark for the first time since June.

Gold daily chart

Levels to watch