Gold Price Forecast: XAU/USD climbs to three-day tops, upside seems limited ahead of Fed


Gold built on the previous day's goodish bounce from the $1,742 area, or the lowest level since August 12 and gained some follow-through positive traction on Tuesday. The momentum pushed the XAU/USD to three-day tops, around the $1,775 region during the early North American session and was exclusively sponsored by a modest US dollar weakness. In fact, the key USD Index retreated further from over one-month tops touched on Monday and provided a modest lift to dollar-denominated commodities, including gold.

Apart from this, worries about contagion from China Evergrande's debt crisis, the fast-spreading Delta variant and a global economic slowdown extended some support to the safe-haven precious metal. That said, a combination of factors might hold traders from placing aggressive bullish bets and keep a lid on any runaway rally for the XAU/USD. The global equity markets made a solid comeback following the previous day's selloff. This, along with a goodish intraday bounce in the US Treasury bond yields, might act as a headwind for gold.

Moreover, firming expectations for an imminent Fed taper announcement should further collaborate towards capping the upside for the non-yielding yellow metal. Despite signs of easing inflationary pressures in the US, the incoming macro data pointed to the continuation of the economic recovery. This, in turn, has been fueling speculations that the Fed would begin rolling back its massive pandemic-era stimulus sooner rather than later. Hence, the most important event for gold prices will be the outcome of the FOMC meeting starting this Tuesday.

The Fed is scheduled to announce its decision on Wednesday and investors will look for fresh clues about the likely timing of the Fed's tapering plan. Apart from this, the latest economic projections, especially the so-called dot plot will play a key role in determining the next leg of a directional move for gold. This makes it prudent to wait for a strong follow-through buying before confirming that the XAU/USD has bottomed out in the near term and positioning for any further gains.

Technical outlook

From a technical perspective, a subsequent move up is more likely to confront stiff resistance near the $1,775-76 region. This is closely followed by a strong horizontal support breakpoint, around the $1,780 level, above which the commodity seems all set to climb further and reclaim the $1,800 round figure.

On the flip side, the daily swing lows, around the $1,758 region, now seems to protect the immediate downside ahead of the $1,752-50 area. Sustained weakness below will be seen as a fresh trigger for bearish traders and turn the XAU/USD vulnerable. The next relevant support is pegged near the $1,729-28 zone, below which bears could aim to challenge the $1,700 mark.

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