Gold Price Forecast: XAU/USD stays inside bearish channel below $1,700, Fed in focus

• Gold price floats above 29-month low flashed on Friday as the Fed week begins.
• US data favors traders to price-in 75 bps Fed rate hike.
• Yields dribble around multi-day top, stocks remain pressured but DXY stays on the bull’s radar.
• Off in Japan, the UK will join a light calendar at home to restrict intraday moves.

Gold price (XAU/USD) remains steady at around $1,675 as Asian traders begin the key week comprising the monetary policy meeting of the Fed.

The yellow metal refreshed the multi-month low the previous day amid broad US dollar strength, as well as increasingly hawkish calls of the US central bank’s next move, before bouncing off $1,654. The recovery moves, however, remain elusive amid a light calendar for the day and the market’s anxiety ahead of Wednesday’s Federal Open Market Committee (FOMC) meeting.

On Friday, the University of Michigan's preliminary readings of Consumer Sentiment for September came in at 59.5, up from 58.6 in the prior month while easing below 60.0 market forecasts. With the firmer US data, the odds of the Fed’s 75 basis points rate hike (bps) rose to nearly 80%, around 82% by the press time, while the market’s expectations of a full one percentage increase in the Fed rate rose to 18%.

It should be noted that a jump in China’s Treasury buying and the fears emanating from Beijing, as well as from Europe, also underpinned the US dollar’s safe-haven demand, which in turn weighed on the XAU/USD prices. That said, the US Dollar Index (DXY) dribbled around the 20-year high marked earlier in the month after the firmer data and geopolitical chatters.

Additionally, hawkish comments from the European Central Bank (ECB) policymakers could also be considered to favor the gold price. “The European Central Bank (ECB) could raise interest rates into next year, causing pain for consumers as it tries to depress demand that is now increasingly adding to sky-high inflation,” ECB Chief Economist Philip Lane said on Saturday per Reuters. On the same line was a ECB Governing Council member and German central bank head Joachim Nagel who said, “ECB rates are far away from levels that are suitable for inflation.”

Amid these plays, Wall Street benchmarks closed in the red while the US Treasury yields remained firmer, which in turn favored the market’s risk-off mood and exerted downside pressure on the metal prices.

Moving on, the XAU/USD traders will keenly await the Fed’s verdict and are likely to favor USD bulls amid hawkish hopes. However, the dot-plot, economic projections and Fed Chair Powell’s speech will be crucial for clear directions.

Technical analysis

Gold price defends the bounce off a six-week-old descending trend channel’s support line, as well as the 61.8% Fibonacci Expansion (FE) of April-August moves. In doing so, the XAU/USD also justifies the RSI (14) bounce off the oversold territory.

However, the bearish MACD signals and sustained trading beyond the previous support line from late July, now resistance around $1,694, keep gold sellers hopeful.

Even if the quote crosses the $1,694 hurdle, the 21-DMA and upper line of the stated channel, respectively around $1,711 and $1,718, could challenge the metal’s recovery moves. It should be noted that a downward sloping resistance line from June 13, close to $1,762, appears the last defense of the bears.

Alternatively, the 61.8% FE and the aforementioned channel’s bottom, respectively near $1,694 and $1,650, are likely to restrict the short-term XAU/USD downside.

Following that, the 78.6% FE level and a four-month-old descending trend line, close to $1,622 and $1,590 in that order.

Overall, gold is likely to remain bearish but the downside room appears limited, at least for intraday.

Gold: Daily chart

Trend: Limited downside expected