Gold Price Forecast: XAU/USD bulls are dwindling as price continues to bleedout

• Gold is pressured and the bears are focused on $1,710 for the sessions ahead. 
• Analysts are anticipating a capitulation event in gold driven by the unwind of a bloated position.

The gold price has held near the lows of the prior sessions, pressured by the strength of the US dollar and higher US yields as investors get positioned for a period of high-interest rates. At the time of writing, XAU/USD is trading at $1,723.51.

Spot gold hit a one-month low of $1,719.56 on Monday and has struggled to recover given the force of the rejection from a key technical area on the daily charts. 

The prospects of higher interest rates and a jump in yields took the US dollar to a fresh two-decade peak at 109.478 on Monday after Powell stated that the central bank would raise rates as high as needed to restrict growth, and would keep them there "for some time" to bring down inflation that is running at more than three times the Fed's 2% goal.

A capitulation on the gold price took effect on the back of his comments, chipping its way through the August lows and the week ahead could offer further catalysts from key economic data and Fed speakers. To start, embedding the hawkish sentiment, on Monday, in response to the market's reaction to last week's Jackson Hole, Minneapolis Federal Reserve Bank President Neel Kashkari crossed the wires emphasizing a seriousness about getting inflation back to 2%.

 We heard from Fed speakers on Tuesday. New York Fed President John Williams told Wall the Wall Street Journal that inflation expectations in the US were well anchored but added that it would take a few years to bring inflation back to 2%. Richmond Federal Reserve Bank President Thomas Barkin said on Tuesday that the United States is facing "post-war-like" inflation.

Most traders now expect a 75-basis-point hike in September which is bolstering the greenback. A stronger dollar makes bullion expensive for overseas buyers. With central bankers making it clear they will do everything to tame inflation, interest rates are likely to rise sharply in coming months and Chair Powell's speech at Jackson Hole has catalyzed a re-pricing in risk assets associated with market expectations for a rate-cut cycle to immediately follow the hiking cycle. ''In this context, we are anticipating a capitulation event in gold driven by the unwind of a bloated position held by a few prop-shops and family offices, which should also sap investment demand for industrial metals,'' analysts at TD Securities argued. 

Gold technical analysis

Meanwhile, the price closed heavily in the red at the end of the week and there has been a follow-through towards $1,720 on the way to $1,710 support. The price has also recovered 50% of the prior bearish impulse which adds further weight to the downside outlook. If the bears commit to the course, a move below the said support area opens the risk of a test of the 2021 lows as far down as $1,678. On the flip side, $1,745 should be key.