Gold Price Forecast: XAU/USD trades with modest losses, downside seems limited amid softer USD

Gold edges lower on Tuesday and erodes a part of the previous day's strong positive move back closer to a one-month high touched last week. The XAU/USD remains on the defensive through the early European session and is currently trading around the $1,785 region, down over 0.15% for the day.

Signs of stability in the equity markets seem to undermine the safe-haven gold, though a combination of factors should help limit the downside. Growing recession fears, along with US-China tensions over Taiwan, keep a lid on any optimistic move in the markets. Apart from this, a further decline in the US Treasury bond yields continues to weigh on the US dollar, which, in turn, is seen lending some support to the dollar-denominated commodity. Bulls, however, seem reluctant to place aggressive bets amid speculations that the Fed would retain its aggressive policy tightening path.

In fact, the markets are pricing in around 70% chances that the Fed would hike interest rates by 75 bps at its September meeting. The bets were reaffirmed by Fed Governor Michelle Bowman's remarks on Saturday, saying that the US central bank should consider more 75 bps hikes at coming meetings to bring inflation back down. This, in turn, is seen acting as a headwind for the non-yielding gold. Investors might also refrain from placing aggressive bets and prefer to move on the sidelines ahead of the latest US consumer inflation figures, scheduled for release on Wednesday.

The US CPI report would be looked upon for fresh clues about the Fed's near-term policy outlook. This would play a key role in influencing the near-term USD price dynamics and help determine the next leg of a directional move for the precious metal. In the meantime, the US bond yields will drive the USD demand amid absent relevant market-moving economic releases. Apart from this, the broader market risk sentiment should produce short-term trading opportunities around gold. The recent range-bound price action, however, points to indecision among traders and warrants caution.

Technical levels to watch