Gold Forecast: XAU/USD Remains Range Confined, Upside Limited

• Gold is struggling to gain any significant traction and is trading in a range on Monday.
• A modest pullback in the dollar from two-decade highs offers some support for the metal.
• Expectations of an aggressive tightening by the main central banks could continue to be limited.

The Prayed it lacks a firm directional bias and wavered between tepid gains and small losses during the early North American session on Monday. The XAU/USDhas managed to hold above the $1,700 mark so far and remains below Friday’s high that was reached after the US monthly employment report, which was mixed.

The US dollar trims some of its intraday gains to hit a new two-decade high and offers some support to dollar-denominated gold. The modest decline in the dollar could only be attributed to profit-taking amid overbought conditions and relatively thin trading volumes due to the US Labor Day holiday. Aside from this, recession fears help the safe-haven precious metal attract some buying in the $1,707 area.

That said, the prospect of further policy tightening by major central banks to rein in inflation is acting as a headwind for the underperforming yellow metal. In fact, the Reserve Bank of Australia is expected to raise interest rates at its meeting on Tuesday. Also, markets are betting on a sharp rate hike by the European Central Bank on Thursday. The Bank of England is also expected to raise interest rates by at least 50 basis points.

In addition, the markets have bet on a rate hike of 75 basis points by the Federal Reserve at its next monetary policy meeting on September 20-21. This continues to support elevated US Treasury yields and favors dollar bulls. The fundamental backdrop should discourage traders from making bullish bets on gold, warranting caution before positioning for an extension of last week’s bounce from near the yearly low.

Technical levels