Gold Price Forecast: XAU/USD needs to make it through $1,674-75 hurdle to confirm a bottom

• A combination of diverging forces fails to provide any meaningful impetus to gold on Friday.
• A softer USD, the prevalent risk-off environment offers some support to the safe-haven metal.
• Rising bets for more aggressive central banks continue to act as a headwind for the XAU/USD.

Gold struggles to capitalize on its goodish rebound from more than a two-year low touched earlier this week and oscillates in a range through the Asian session on Friday. The US dollar languishes near the weekly low and is a key factor in offering some support to the dollar-denominated commodity. The UK debt market seems to have stabilized following the Bank of England's intervention for the second day on Thursday, which underpins the British pound and weighs on the buck. The prevalent risk-off environment - amid growing worries about a deeper global economic downturn - offers additional support to the safe-haven precious metal.

The prospects for a more aggressive policy tightening by global central banks and the risk of further escalation in the Russia-Ukraine conflict have fueled recession fears. Mixed business activity data from China adds to the concerns and tempers investors' appetite for riskier assets. The official Chinese PMI showed Friday that the country’s manufacturing sector unexpectedly expanded in September. The private survey, however, showed that a decline in the manufacturing sector deepened in the month in the wake of headwinds from COVID lockdowns. This takes its toll on the risk sentiment, evident from a weaker tone around the equity markets.

Despite the aforementioned supporting factors, gold lacks bullish conviction amid the Fed’s commitment to keeping hiking interest rates faster to curb inflation. The bets were reaffirmed by hawkish remarks by several officials this week, which remains supportive of elevated US Treasury bond yields and continues to cap gains for the non-yielding yellow metal. The benchmark 10-year Treasury note remains close to a 12-year high set on Wednesday and helps limit the downside for the greenback. This, in turn, warrants some caution before confirming that the XAU/USD has already formed a bottom near the $1,620 area and positioning for any near-term appreciating move.

Market participants now look to the US Personal Consumption Expenditures (PCE) - the Fed's preferred inflation gauge for a fresh impetus later during the early North American session. The US economic docket also features the release of the Chicago PMI and revised Michigan Consumer Sentiment Index. Traders will further take cues from speeches by FOMC members. This, along with the US bond yields, should influence the USD price dynamics and produce some trading opportunities around gold. Nevertheless, the XAU/USD is all set to register a sixth straight month of losses and the bias remains tilted in favour of bearish traders amid more hawkish Fed expectations.

Technical Outlook

From a technical perspective, acceptance above the 38.2% Fibonacci retracement level of the recent fall from the monthly peak will pave the way for additional gains. Gold might accelerate the momentum towards the $1,674-$1,675 supply zone. The latter also marks a confluence hurdle, comprising the 50% Fibo. level and the 100-period SMA on the 4-hour chart. Sustained strength beyond could trigger a short-covering move and allow bulls to aim back to reclaim the $1,700 round-figure mark.

On the flip side, any meaningful pullback might continue to find decent support near the overnight swing low, around the $1,645-$1,643 region, which coincides with the 23.6% Fibo. level. The next relevant support is pegged near the $1,620-$1,615 region, or the YTD low. Some follow-through selling will be seen as a fresh trigger for bearish traders and drag gold towards the $1,600-$1,590 area. The downward trajectory could extend towards the $1,567-$1,565 intermediate support en route to the $1,530-$1,528 region and the $1,500 psychological mark.