Gold Price Forecast: XAU/USD struggles near multi-week low, around $1,910 region

Gold price edges lower during the Asian session on Monday and drops to the $1,911-$1,910 region, or its lowest level since July 7 in the last hour. The intraday downtick, however, lacks follow-through selling, warranting caution for aggressive bearish traders and positioning for an extension of the recent downward trajectory witnessed over the past three weeks or so.

The prospects for further policy tightening by the Federal Reserve (Fed) lift the US Dollar to a fresh six-week peak and turn out to be a key factor acting as a headwind for the non-yielding Gold price. The bets were reaffirmed by the United States (US) Producer Price Index (PPI) on Friday, which climbed slightly more than expected in July. In fact, the US Bureau of Labor Statistics reported that the PPI for final demand rose 0.8% on a yearly basis during the reported month, up sharply from a flat reading in June.

Against the backdrop of a moderate increase in consumer prices in July, the data suggested that the battle to bring inflation back to the Fed's 2% target is far from being won. The outlook keeps the door for one more 25 basis points (bps) Fed rate hike move by the end of this year wide open and remains supportive of a further rise in the US Treasury bond yields. This, in turn, continues to act as a tailwind for the Greenback and exerts some downward pressure on the US Dollar-denominated Gold price.

That said, concerns about the worsening economic conditions in China, along with geopolitical risks, could lend some support to the safe-haven XAU/USD and help limit the downside, at least for the time being. In the latest development, a Russian warship fired warning shots at a cargo ship in the southwestern Black Sea on Sunday. This comes after Russia in July halted its participation in a landmark UN-brokered grain deal that allowed Ukraine to export agricultural products via the Black Sea.

Nevertheless, the aforementioned fundamental backdrop seems tilted firmly in favour of bearish traders and suggests that the path of least resistance for the Gold price remains to the downside. Hence, any attempted recovery is more likely to get sold into and runs the risk of fizzling out rather quickly. In the absence of any relevant market-moving economic data on Monday, the USD price dynamics will continue to play a key role in influencing the XAU/USD and producing short-term trading opportunities.

Technical levels to watch