Gold Price Forecast: XAU/USD refreshes multi-week high amid weaker USD, falling bond yields

• Gold scales higher for the third straight day and climbs to a multi-week high on Friday.
• The post-FOMC USD selling, tumbling US bond yields continued to benefit the metal.
• The risk-on impulse might be the only factor capping gains ahead of the US PCE report.

Gold is building on the previous day's breakout momentum beyond the $1,745-$1,750 resistance zone and gains traction for the third successive day on Friday. The momentum pushes the XAU/USD to over a three-week high, around the $1,767-$1,768 region during the early European session and was sponsored by the prevalent US dollar selling bias.

The Federal Reserve on Wednesday acknowledged that economic indicators have softened and noted signs of a slowdown. Furthermore, Fed Chair Jerome Powell hinted that the US central bank could slow the pace of its hiking campaign at some point and that the move would be dependent on the incoming data. Apart from this, the disappointing release of the Advance US GDP report on Thursday further fueled speculations that the Fed would not raise interest rates as aggressively as previously estimated. This turns out to be a key factor that continued weighing on the greenback and offering support to the dollar-denominated gold.

The markets are now pricing in just 92 bps of cumulative tightening by the end of 2022, down from 108 bps before the Fed decision on Wednesday. This led to a further decline in the US Treasury bond yields, which is exerting additional downward pressure on the buck. In fact, the yield on the 10-year US government bond has now dropped to its lowest level since April and contributing to driving flows towards the non-yielding yellow metal. Friday's follow-through move up could further be attributed to technical buying above the $1,745-$1,750 horizontal barrier, though the risk-on impulse might cap gains for gold.

The incoming macro data have raised concerns about an economic downturn and could force major central banks to ease off their aggressive policy tightening cycle. This, in turn, is booting investors' confidence and is evident from a generally positive tone around the equity markets, which could act as a headwind for the safe-haven XAU/USD. Nevertheless, gold remains on track to register strong gains for the second successive week. Market participants now look forward to the US Personal Consumption Expenditures (PCE report) - the Fed preferred inflation gauge - for fresh impetus later during the early North American session.

Technical levels to watch