Gold Price Forecast: $1744-46 confluence likely to cap gains for XAU/USD ahead FOMC

Gold edged higher for the third consecutive session on Tuesday, albeit lacked any follow-through buying and remained below the $1740 supply zone. Investors turned cautious amid the suspension of the Oxford/AstraZeneca coronavirus vaccine in several European nations, which added to concerns about possible serious side effects. This was seen as a key factor that extended some support to the safe-haven XAU/USD. Apart from this, a modest pullback in the US Treasury bond yields kept the US dollar bulls on the defensive and further benefitted the dollar-denominated commodity. In fact, the yield on the benchmark 10-year US government bond retreated from over one-year tops amid expectations that the Fed could take action to curb any further rise in long-term borrowing cost.

That said, the optimistic global economic outlook capped gains for the commodity. Investors might also refrain from placing any aggressive bets, rather prefer to wait on the sidelines ahead of this week's key event risk – the FOMC monetary policy meeting. The prospects for a relatively faster US economic recovery were bolstered by the passage of a massive $1.9 trillion stimulus package. The reflation trade forced investors to price in a possible uptick in US inflation and raised doubts that the Fed would retain ultra-low interest rates for a longer period. Hence, the FOMC policy decision, scheduled to be announced on Wednesday, will play a key role in influencing the non-yielding yellow metal and assist investors to determine the next leg of a directional move.

In the meantime, Tuesday's US economic docket – highlighting the release of monthly Retail Sales – will be looked upon for some impetus. This, along with the US bond yields, will influence the USD price dynamics. Traders might further take cues from the broader market risk sentiment to grab some short-term trading opportunities.

Technical outlook

From a technical perspective, any further positive move is likely to confront stiff resistance near the $1744-45 confluence region. This comprises a one-month-old descending trend-line and the 38.2% Fibonacci level of the $1855-$1676 downfall. A convincing breakthrough the mentioned barrier might trigger a short-covering move and push the XAU/USD back towards the $1765 strong horizontal support breakpoint. The latter coincides with the 50% Fibo. level and should act as a key pivotal point for short-term traders.

On the flip side, immediate support is pegged near the 23.6% Fibo. level, around the $1722-19 region ahead of the $1700 round-figure mark. Failure to defend the mentioned support levels will negate prospects for any further near-term recovery and turn the commodity vulnerable to retest multi-month lows, around the $1677-76 region. Some follow-through selling will pave the way for an extension of the recent downward trajectory witnessed since the beginning of this year.