Gold Price Forecast: XAU/USD bulls to remain cautious below $1,700 amid pre-Fed anxiety

• Gold price extends its consolidation phase amid a better market mood.
• US dollar eases with yields, as traders reassess the impact of aggressive Fed tightening.
• XAU/USD needs acceptance above $1,680 on a four-hourly closing basis.

Gold price is looking to extend its downside consolidation phase on Tuesday, having revisited 29-month lows near $1,655 a day before. The bright metal is treading water amidst the market’s anxiety, which is typical ahead of the critical Fed rate hike decision on Wednesday. The Fed board members will kick off their two-day policy meeting later this Tuesday. Therefore, traders have turned to the sidelines, refraining from placing directional bets on the bullion. Meanwhile, the late rebound in Wall Street on Monday has translated into risk-on trading in Asia, limiting the recovery attempts in the US dollar across its main rivals. However, the downside in the metal appears capped by a minor pullback in the US Treasury yields as investors continue assessing the impact of aggressive Fed rate hikes. The benchmark 10-year yield extends its retreat from 11-year highs of 3.518%, trading around 3.48% at the time of writing,

Markets will likely remain in a wait-and-see mode ahead of the central banks' bonanza later this week, with the Fed decision eagerly awaited. As a 75 bps rate hike is fully baked in, the Fed’s projection of the terminal rate will hold the key to a fresh direction in XAU/USD. Markets are still pricing about 20% odds of a 100 bps rate hike. If the Fed forecast a terminal rate above 5% in the coming years, it could be seen as hawkish. The USD-priced gold will remain at the mercy of the Fed outcome. The US housing data due later in the NA session is unlikely to have any market impact.

Also read: Fed September Preview: Terminal rate projection is key

The yellow metal erased losses seen in the first half of Monday’s trading to settle the day almost unchanged. The US dollar index corrected sharply after facing rejection once again above 110.00, aiding the recovery of the metal. The late rebound in Wall Street indices exerted downward pressure on the safe-haven dollar. However, firmer Treasury yields across the curve kept gold bulls on tenterhooks. Holiday-thinned market conditions also failed to offer any impetus to traders while they braced for the quartet of central banks’ decisions in the week ahead. The bullion fell as low as $1,660 before recovering ground in American trading to end the day flat at around $1,675.

Gold price technical outlook: Four-hour chart

Gold price has been traversing within an ascending triangle formation after hitting the two-year bottom last Friday.

Bulls are testing the triangle's upper boundary, which is aligned at $1,680. They need a four-hourly candlestick closes above the latter to confirm a triangle breakout.

The next upside barrier will be seen at the $1,690 round number, above which the $1,700 threshold could come into play.

With the Relative Strength Index (RSI), however, lurking below the midline, it remains to be seen if bulls will take over control.

On the flip side, the bearish 21-Simple Moving Average (SMA) at $1,672 will be the immediate cushion. The next line of defense for XAU bulls is envisioned at the previous day’s low of $1,660.

The 29-month low of $1,654 will be back on sellers’ radars should the downside momentum gather steam.