Gold Price Forecast: XAU/USD remains vulnerable near multi-week lows ahead of Powell

Gold extended its intraday descent through the early North American session and dropped to seven-week lows, below the $1,730 level in the last hour. Soaring US Treasury bond yields turned out to be a key factor driving flows away from the non-yielding yellow metal amid expectations for an early policy tightening by the Fed. It is worth recalling that the US central bank hinted last week that it will soon begin rolling back its massive pandemic-era stimulus as soon as November. Adding to this, the so-called dot plot indicated that more policymakers were inclined to raise interest rates in 2022.

The market speculations were reaffirmed by comments from a slew of influential FOMC members. Fed Governor Lael Brainard, New York Fed President John Williams and Chicago Fed President Charles Evans all expressed comfort with the first phase of policy tightening on Monday. Adding to this, St. Louis Federal Reserve President James Bullard said this Tuesday the policy normalization can move faster than following the 2007 to 2009 crisis amid the robust speed of the economic recovery. Hence, the market focus will remain on Fed Chair Jerome Powell's testimony before the Senate Banking Committee, due later in the day.

In the prepared remarks released on Monday, Powell cautioned that the causes of the recent rise in inflation may last longer than anticipated. The central bank chief said that the economic growth continues to strengthen but has met with upward price pressures caused by supply chain bottlenecks and other factors. Powell further added that the central bank would move against unchecked inflation if needed and contributed to the upward pressure on the US bond yields. This, in turn, pushed the US dollar to the highest level since August 20, which was seen as another factor weighing on the dollar-denominated gold.

That said, the risk-off impulse in the financial markets acted as a tailwind for traditional safe-haven assets and helped limit any further losses for the XAU/USD, at least for now. Investors remain worried about potential risks from the debt crisis at China Evergrande Group. This, along with a selloff in the money markets and the intensifying energy crisis, took its toll on the global risk sentiment. Nevertheless, gold remains vulnerable to prolong its bearish trajectory and aim to test the $1,700 round-figure mark.

Technical levels to watch