Gold Price Forecast: XAU/USD seems vulnerable near multi-week low amid rate hike jitters

Gold comes under some renewed selling pressure on Wednesday and drops to a three-week low during the early European session. The XAU/USD is currently trading just above the $1,640 level and is pressured by a combination of factors.

Growing acceptance that the Fed will continue to tighten its monetary policy at a faster pace triggers a fresh leg up in the US Treasury bond yields and weighs on the non-yielding yellow metal. In fact, the FedWatch tool indicates a nearly 100% chance of the fourth successive supersized 75 bps rate increase at the next FOMC meeting in November. The bets were reaffirmed by hotter US consumer inflation figures released last week, recent hawkish remarks by several Fed officials and strong earnings announcements from major US corporations. 

Reiterating the Fed's commitment to bring down inflation, Minneapolis Fed President Neel Kashkari said on Tuesday that the policy rate could rise above 4.75% if underlying inflation does not stop rising. This, in turn, lifts the yield on the rate-sensitive 2-year to a 15-year peak and the benchmark 10-year Treasury note to its highest level since 2008, which assists the US dollar to regain positive traction. A modest USD strength exerts additional pressure on the dollar-denominated gold.

That said, a pullback in the US equity futures might turn out to be the only factor that could offer some support to the safe-haven XAU/USD. Investors remain concerned about the economic headwinds stemming from rapidly rising borrowing costs. Apart from this, China's strict zero-COVID policy has been fueling recession fears and keeping a lid on the recent optimistic move. The fundamental backdrop, however, seems tilted in favour of bearish traders and supports prospects for further losses.

Hence, any attempted recovery move might still be seen as a selling opportunity and runs the risk of fizzling out rather quickly. Market participants now look forward to the US housing market data - Building Permits and Housing Starts - for a fresh impetus later during the early North America session. This, along with the US bond yields, will drive the USD demand and provide some impetus to gold. Apart from this, traders will further take cues from the broader risk sentiment.

Technical levels to watch