Gold Price Forecast: XAU/USD treads water below $1,700 amid pre-Fed anxiety

• Gold price remains indecisive after bouncing off the yearly low.
• Sluggish markets, cautious mood ahead of the key central bank announcements test XAU/USD traders.
• Heavy fall in gold ETF holdings contrast with the DXY’s pullback to challenge traders.

Gold price (XAU/USD) changes hands near $1,676 while trying to defend Friday’s corrective bounce off the two-year low during Tuesday’s early European morning. In doing so, the bullion portrays the market’s anxiety ahead of the key central bank announcements amid trade/geopolitical fears emanating from Russia and China.

Fears that the US dollar has already priced in the Fed’s 0.75% rate hike and there is no further room for the greenback’s upside seemed to have weighed on the US currency of late. The fears could well be linked to the downbeat US housing data and inflation expectations.

The US NAHB Housing Market Index fell for a ninth consecutive month to 46 versus 48 expected and 49 prior. That said, the US inflation expectations, as per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, dropped for the third consecutive day to a two-month low near 2.34% by the end of Monday’s North American trading session. More importantly, the 5-year breakeven inflation rate per the FRED data dropped to the lowest levels since September 2021, at 2.44% at the latest. The same raised concerns about the market’s surprise reaction to the hawkish Fed bets.

On other hand, European Commission’s readiness for using emergency power to avoid a supply crisis seemed to have joined the hawkish comments from the European Central Bank (ECB) policymakers to underpin the XAU/USD upside, via a softer USD. Also, a little less noise surrounding the US-China tension over Taiwan and China’s covid unlocks adds to the positives for the metal prices.

Even so, multi-day high yields and overall expectations of higher rates amid economic slowdown concerns seem to keep the gold price pressured. Also, news that holdings in the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell to 30,799,131 ounces on Monday, the lowest since March 2020, add to the negative catalysts for the XAU/USD traders.

That said, the second-tier US housing numbers may offer immediate directions ahead of Wednesday’s FOMC.  Given the higher hopes from the Fed, any disappointment won’t be taken lightly and can provide the much-needed bounce to the XAU/USD from the yearly low.

Technical analysis

Gold price struggles to overcome the 5-DMA immediate hurdle near $1,680 inside a seven-week-old bearish channel. Also challenging the buyers are the bearish MACD signals and downbeat RSI (14) conditions.

It’s worth noting that the XAU/USD rebound past $1,680 needs validation from the previous support line from late July, around $1,695, as well as the $1,700 threshold, to recall the buyers.

On the contrary, the stated channel’s support line near $1,650 is likely to lure the gold sellers during the fresh downside.

Following that, the $1,600 round figure and the April 2020 low surrounding $1,570 will be in focus.

Gold: Daily chart

Trend: Bearish