Gold price pares intraday gains, struggles to make it through $1,725-26 resistance zone

• Gold price gained some positive traction on Monday amid the ongoing USD profit-taking slide.
• Diminishing odds for more aggressive Fed rate hikes weighed on the buck and extended support.
• The risk-on impulse, rebounding US bond yields acted as a headwind and capped the commodity.

Gold price kicked off the new week on a positive note and moved away from a nearly one-year low touched last week. The intraday uptick, however, lacked bullish conviction and lost steam just ahead of the $1,725 level. The XAUUSD was last seen trading around the $1,715-$1,716 region during the early North American session, still up over 0.50% for the day.

Gold price supported by retreating USD

The US dollar extended last week's retracement slide from a two-decade high and witnessed heavy selling for the second straight day amid diminishing odds for a 100 bps Fed rate hike move in July. This, in turn, was seen as a key factor that offered some support to the dollar-denominated gold. Several Federal Reserve officials signalled last week that they did not favour the bigger rate hike that the markets had priced in. It is worth recalling investors lifted their bets for a supersized Fed rate hike move after the US consumer inflation in June accelerated to the highest level since November 1981.

Less hawkish FOMC members weighed on the USD

Two of the most hawkish FOMC members - Fed Governor Christopher Waller and St. Louis Fed President Jim Bullard - pushed back against expectations for more aggressive rate hikes by the US central bank. Adding to this, Atlanta Fed President Raphael Bostic cautioned on Friday that moving too dramatically could undermine positive aspects of the economy and add to the uncertainty. This, in turn, continued weighing on the greenback. That said, a combination of factors held back bullish traders from placing aggressive bets and kept a lid on any meaningful upside for the gold price, at least for the time being.

Fed Chair Jerome Powell

Risk-on impulse acted as a headwind for gold price

The global equity markets witnessed a counter-trend rally amid hopes that the Fed would be less aggressive at its upcoming meeting than previously feared. The risk-on impulse triggered a fresh leg up in the US Treasury bond yields, which, in turn, acted as a headwind for the safe-haven gold. In fact, the yield on the benchmark 10-year US government bond shot back above the 3.0% threshold. This helped limit deeper losses for the USD and further contributed to cap gains for the XAUUSD. Hence, it will be prudent to wait for strong follow-through buying before confirming that spot prices have bottomed out.

Gold price technical outlook

Gold price has repeatedly shown some resilience below the $1,700 round-figure mark. That said, the metal’s inability to gain any meaningful traction suggests that the near-term risks remain skewed to the downside. This, in turn, suggests that any subsequent strength beyond the $1,725-$1,726 immediate resistance might confront stiff resistance near the $1,734-$1,735 horizontal zone. A sustained move above might trigger a bout of short-covering and lift the XAUUSD towards the $1,749-$1,752 supply zone.

On the flip side, last week's swing low, around the $1,698-$1,697 area, now seems to protect the immediate downside. A convincing break below would make the XAUUSD vulnerable and accelerate the fall towards September 2021 low, around the $1,787-$1,786 region. Gold price could extend the downward trajectory towards testing the 2021 yearly low, near the $1,677-$1,676 area.

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