Gold Price Analysis: XAU/USD remains confined in a range around $1730 area, FOMC awaited

Gold extended its sideways consolidative price action and remained confined in a range around the $1730 region through the Asian session.

The precious metal, so far, has struggled to capitalize on the recent bounce from multi-month lows and has been oscillating in a narrow band over the past two trading session. Investors now seemed to have moved on the sidelines, awaiting fresh catalyst from the FOMC policy decision due later this Wednesday.

In the meantime, the suspension of the Oxford/AstraZeneca coronavirus vaccine in several European nations acted as a headwind for the global risk sentiment. This, in turn, was seen as a key factor that extended some support to the safe-haven XAU/USD and helped limit the downside, at least for the time being.

The supporting factor, to a larger extent, was offset by the prospects for a relatively faster US economic recovery, bolstered by the passage of a massive US stimulus package. The upbeat US economic outlook continued underpinning the US dollar and kept a lid on any meaningful gains for the dollar-denominated commodity.

Meanwhile, the reflation trade has been fueling speculation about an uptick in US inflation and raised doubts that the Fed would retain ultra-low rates for a longer period. The market expectations pushed the yield on the benchmark 10-year US government bond to over one-year tops and further capped the upside for the non-yielding yellow metal.

Hence, the outcome of a two-day FOMC meeting will now play a key role in determining the next leg of a directional move for the XAU/USD. Heading into the key central bank event risk, the commodity seems more likely to remain capped below the $1740-42 resistance zone, which should now act as a key pivotal point for short-term traders.

Technical levels to watch