Gold Price Forecast: XAU/USD sticks to modest recovery gains, upside potential seems limited

• Gold gains positive traction on Thursday and snaps a three-day losing streak to a two-week low.
• Recession fears weigh on investors’ sentiment and offer support to the safe-haven precious metal.
• Hawkish Fed expectations continue to underpin the USD and might cap gains for the commodity.

Gold edges higher on Thursday and snaps a three-day losing streak to the $1,760 area, or a two-week low touched the previous day. The XAU/USD holds on to its modest intraday gains through the first half of the European session and is currently placed near the daily high, just above the $1,765 level.

Growing worries about a global economic downturn continue to weigh on investors' sentiment, which is evident from a generally weaker tone around the equity markets. The anti-risk flow turns out to be a key factor offering some support to the safe-haven gold, though a combination of factors might hold back traders from placing aggressive bullish bets.

The US dollar hits a fresh monthly high and continues to draw support from hawkish Fed expectations, which, in turn, could act as a headwind for the dollar-denominate gold. Despite signs of easing inflationary pressure in the US, the recent hawkish remarks from several Fed officials suggest that US central bank would stick to its policy tightening path.

Even the minutes of the July 26-27 FOMC monetary policy meeting showed that most members supported more rate hikes until inflation came down substantially. This was consistent with the base case scenario for a 50 bps rate hike at the September meeting and remains supportive of elevated US Treasury bond yields, which should further cap the non-yielding yellow metal.

From a technical perspective, the recent repeated failures to find acceptance, or build on the momentum beyond the $1,800 mark favours bearish traders. This, in turn, suggests that the path of least resistance for gold prices is to the downside. Hence, any subsequent move up could still be seen as a selling opportunity and runs the risk of fizzling out quickly.

Market participants now look forward to the US economic docket - featuring the release of the Philly Fed Manufacturing Index, the usual Weekly Initial Jobless Claim and Existing Home Sales data. This, along with the US bond yields, might influence the USD price dynamics. Apart from this, the broader risk sentiment could provide a fresh trading impetus to gold.

Technical levels to watch