Gold Price Forecast: XAU/USD eyes 2022 low at $1,681 amid aggressive Fed rate hike bets

Gold price is making a minor headway from the lowest point so far this week at $1,697, as the US dollar corrects sharply after witnessing the biggest rally since 2020. Profit-taking after the relentless upsurge and the BOJ intervention talks-led USD/JPY sell-off are triggering a broad retreat in the dollar. However, the rebound in the bright metal appears capped by the increased bets of aggressive Fed tightening, which have kept the buoyant tone intact around the US Treasury yields across the curve. Meanwhile, the risk-off market sentiment amid the deepening yield-curve inversion, as investors reassess Fed’s rate hike path following hotter US Consumer Price Index (CPI) while bracing for the Producer Price Index (PPI) data release later in the NA session.

Also read: King Dollar back on the throne

XAU/USD dipped briefly below $1,700 during one point on Tuesday before recapturing the latter at the close, still down over $20 on the day. Markets resorted to ‘sell everything’ mode after the US CPI beat expectations on the headline as well as the core figures across the time curve. The US CPI to 8.3% on a yearly basis in August from 8.5% in the previous month. The reading surpassed estimates pointing to a decline to 8.1%. The Core CPI rose by 0.6% MoM in August (0.3% expected) and climbed to 6.3% on yearly basis, up from 5.9% in July and 6.1% expected. Hotter-than-expected US inflation jacked up bets for a 75 bps Fed rate hike to 94% while bringing talks of a 100 bps lift-off back on the table. Further, the data squashed speculation surrounding the Fed lowering rates next year. Hawkish Fed expectations triggered a slide in major Wall Street indices on concerns over higher rates for longer, as Fed stands committed to bringing inflation down.

Gold price technical outlook: Daily chart

Gold price once again faltered at the bearish 21-Daily Moving Average (DMA), then at $1,732 and witnessed a meltdown on the US CPI data release.

As well predicted here, the bright metal attacked the $1,700 mark while it remains vulnerable near the latter, as of writing.

The 14-day Relative Strength Index (RSI) is turning flat but still holds below the midline, favoring XAU bears.

The next downside target is seen around the $1,690 support area, below which the 2022 lows of $1,681 will be tested once again.

On the flip side, gold buyers need acceptance above Monday’s low of $1,712 to sustain the recovery momentum.

The $1,720 round number and the 21-DMA, now at $1,727, could offer strong resistance to the optimists.