Breaking: Gold Price Forecast: XAU/USD rallies to over one-year peak, further beyond $2,000 mark

Gold price attracts fresh buying following an early slide to the $1,968 area on Monday and climbs to over a one-year top, beyond the $2.000 psychological mark during the early part of the European session. The strong intraday move-up validates Friday's breakout through the previous YTD peak, around the $1,958 zone, and supports prospects for an extension of the recent upward trajectory witnessed over the past two weeks or so.

The prevalent risk-off environment – as depicted by a sea of red across the global equity markets – turns out to be a key factor driving haven flows towards Gold price. Despite the recent emergency liquidity measures and multi-billion-dollar lifelines for troubled banks in the US and Europe, concerns about the contagion risk and the possibility of a full-blown global banking crisis showed little signs of subsiding. Apart from this, looming recession risks take a toll on the global risk sentiment and force investors to take refuge in traditional safe-haven assets, including the XAU/USD.

The anti-risk flow, along with diminishing odds for a more aggressive policy tightening by the Federal Reserve, lead to a further steep decline in the US Treasury bond yields. The US central bank is now expected to soften its hawkish rhetoric to prevent any further economic pressure from high-interest rates. Moreover, the markets are now pricing in a smaller 25 bps lift-off at this week's FOMC meeting, starting on Tuesday, and the Fed will cut rates during the second half of the year. This has been a key factor behind the recent sharp decline in the US Treasury bond yields.

In fact, the rate-sensitive 2-year US government bond last week recorded its biggest three-day slump since Black Monday in October 1987. This, to a larger extent, helps offset a modest US Dollar (USD) strength, which tends to undermine the US Dollar-denominated Gold price. Traders, however, might refrain from placing fresh bullish bets and prefer to move to the sidelines ahead of the key central bank event risk. The Fed is scheduled to announce its policy decision on Wednesday, which will now play a key role in influencing the next leg of a directional move for the XAU/USD.

Technical levels to watch