Gold price rebounds from 15-month low, upside seems capped amid hawkish central banks

• Gold price witnessed an intraday short-covering move from over a 15-month low.
• The post-ECB rise in the euro weighed on the USD and offered support to the metal.
• A weaker tone around the equity markets benefitted the safe-haven commodity.

Gold price staged a goodish intraday bounce from the $1,680 region, or its lowest level since March 2021 touched earlier this Thursday and shot to a fresh daily high in the last hour. The XAUUSD was last seen trading around the $1,710 region, up nearly 0.50% for the day, though any meaningful upside still seems elusive.

Gold price benefitted from modest USD weakness

The US dollar came under renewed selling pressure as investors continue scaling back their bets for a massive 100 bps rate hike move by the Federal Reserve in July. Apart from this, the hawkish European Central Bank (ECB) inspired an intraday spike in the shared currency and dragged the USD Index to a fresh two-week low. This, in turn, was seen as a key factor that prompted an intraday short-covering around the dollar-denominated gold.

Also read: Gold Price Forecast: Will the ECB rescue XAUUSD bulls?

Aggressive major central bank moves to cap gains

That said, the prospects for further interest rate hikes by major central banks to curb inflation might continue to act as a headwind for the non-yielding gold. The ECB followed the global tightening trend and raised its official rates for the first time since 2011 on Thursday. The central bank delivered a jumbo 50 bps rate increase against the broader consensus for a 25 bps and also indicated that rates would rise further in future meetings.

Adding to this, the overnight hawkish comments by the Bank of England Governor Andrew Bailey bolstered bets for a 50 bps rate hike in August, which would be the biggest since 1995. The Federal Reserve is also expected to raise rates by another 75 bps at its upcoming policy meeting on July 26-27. Moreover, the Reserve Bank of Australia had signalled earlier this week the need for higher interest rates to tame rising inflation.

ECB hikes rates by 50 bps

Risk-off impulse offered some support

A softer risk tone, however, offered some support to the safe-haven gold. The recent bounce in the equity markets ran out of steam rather quickly amid the worsening global economic outlook and growing recession fears. Investors remain concerned that rapidly rising interest rates, the Russia-Ukraine and the imposition of strict COVID-19 controls in China would pose challenges to global growth. This, in turn, tempered investors' appetite for riskier assets.

Gold price technical outlook

Gold price might struggle to move back above the $1,710-$1,712 immediate hurdle, which is followed by the $1,725-$1,726 supply zone. Some follow-through buying could trigger a fresh bout of a short-covering move and lift the XAUUSD back towards the $1,744-$1,745 resistance zone. The latter should act as a key pivotal point, which if cleared decisively would suggest that the metal has formed a near-term bottom.

On the flip side, the $1,700-$1,695 zone now seems to protect the immediate downside ahead of the YTD low, around the $1,680 region. Sustained weakness below, leading to a subsequent break through the 2021 yearly low, around the $1,677-$1,676 area, would be seen as a fresh trigger for bearish traders. The gold price could then prolong the downward trajectory and test the next relevant support near the $1,670 horizontal zone.

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