Gold Price Forecast: XAUUSD struggles near YTD low amid strong follow-through USD buying

Gold extends the post-FOMC sharp retracement slide from the $1,670 supply zone and remains under heavy selling pressure for the second successive day on Thursday. The downward trajectory drags the XAUUSD back closer to the YTD low, around the $1,617 area during the early North American session.

The US dollar prolongs its recent strong move up witnessed over the past week or so and is seen as a key factor driving flows away from the dollar-denominated gold. In fact, the USD Index, which measures the greenback's performance against a basket of currencies, rallies to a nearly two-week high amid a more hawkish stance adopted by the Federal Reserve.

It is worth recalling that Fed Chair Jerome Powell on Wednesday smashed expectations for a dovish pivot and said that it was premature to discuss a pause in the rate-hiking cycle. Powell further added that the terminal rate will likely be higher than anticipated, suggesting that the Fed will continue to tighten its monetary policy to combat stubbornly high inflation.

The dramatic shift in the expected Fed rate hike path pushes the yield on the 2-year US government bond momentarily beyond the 5.0% psychological mark for the first time since May 2006. Meanwhile, the benchmark 10-year US Treasury note holds comfortably above the 4.0% threshold, which further underpins the buck and exerts additional pressure on the non-yielding gold.

Even the prevalent risk-off mood - as depicted by a generally weaker tone across the equity markets - fails to impress bulls or lend any support to the safe-haven XAUUSD. Market participants now look forward to the US ISM Services PMI, which, along with the US bond yields, will influence the USD price dynamics and provide a fresh impetus to gold.

Technical levels to watch

Some follow-through selling below the $1,615-$1,614 area will be seen as a fresh trigger for bearish traders and make the XAUUSD vulnerable to test the $1,600 round-figure mark. A convincing break below the latter should pave the way for an extension of the recent bearish trajectory witnessed over the past month or so. On the flip side, any meaningful recovery attempted might now be seen as a selling opportunity and runs the risk of fizzling out rather quickly near the $1,630 horizontal zone. That said, a sustained strength beyond might trigger a short-covering move and lift spot prices back towards the next relevant hurdle near the $1,648-$1,650 region.