Gold Price Forecast: XAU/USD struggles near 29-month low amid Fed rate hike jitters

• Gold remains under intense selling pressure for the fourth successive day on Friday.
• Aggressive Fed rate hike bets boost the USD and drive flows away from the metal.
• The risk-off impulse offers some support to the XAU/USD amid oversold conditions.

Gold continues losing ground for the fourth successive day on Friday and drops to its lowest level since April 2020. The selling pressure now seems to have abated, at least for the time being, allowing the XAU/USD to hold above the $1,650 level.

The US dollar catches fresh bids on the last day of the week amid expectations of a hefty rate hike by the Fed and turns out to be a key factor exerting downward pressure on the dollar-denominated gold. In fact, the markets started pricing in the possibility of a full 100 bps rate increase at the upcoming FOMC meeting on September 20-21 following the release of the stronger US CPI earlier this week.

Moreover, market players also expect the US central bank to deliver another supersized 75 bps rate hike in November. This remains supportive of elevated US Treasury bond yields, which offer additional support to the greenback and further contribute to driving flows away from the non-yielding yellow metal. That said, the risk-off impulse helps limit losses for the safe-haven gold, at least for now.

The market sentiment remains fragile amid worries that the rapid rise in borrowing costs will lead to a deeper global economic downturn. This, along with the economic headwinds stemming from fresh COVID-19 lockdowns in China and the protracted Russia-Ukraine war, has been fueling recession fears. This, in turn, tempers investors' appetite for riskier assets and triggers a sell-off in the equity markets.

Apart from this, extremely oversold conditions on the 4-hour chart hold back bearish traders from placing fresh bets around gold. Investors might also prefer to move to the sidelines ahead of next week's key central bank event risks. The Fed is scheduled to announce its decision on Wednesday, which will be followed by the Bank of Japan, Swiss National Bank and the Bank of England meetings on Thursday.

Nevertheless, the fundamental backdrop remains tilted firmly in favour of bearish traders and suggests that the path of least resistance for gold is to the downside. Hence, any meaningful recovery attempt might still be seen as a selling opportunity and runs the risk of fizzling out rather quickly.

Technical levels to watch