- Gold remains bearish for the third day in a row, although the decline appears to be muted.
- The Fed’s aggressive rate hike bets lift the dollar to a new two-decade high and act as a headwind.
- The pullback in US bond yields appears to cap dollar gains and support XAU/USD.
The Prayed struggles to build on its modest intraday bounce and attracts fresh selling near the $1,707 area on Wednesday. The XAU/USD remains on the defensive during the early American session and is currently trading around $1,700.
The incessant buying of US dollars continues for the third day in a row, proving to be a key factor putting downward pressure on dollar-denominated gold. Indeed, the dollar index, which measures the USD’s performance against a basket of currencies, hits a new two-decade high and remains well supported by Fed expectations.
Tuesday’s upbeat US services PMI reaffirmed market bets that the US central bank will continue to raise interest rates more aggressively to control inflation. The Federal Reserve is expected to raise interest rates by 75 basis points at the end of its two-day policy meeting on September 21, which, in turn, remains a tailwind for the dollar.
Aside from this, the recovery in risk sentiment globally – as shown by the generally positive tone in equity markets – further weakens safe-haven gold. That said, a modest pullback in US Treasury yields is keeping dollar bulls from making further bets and lending some support to the unperforming metal for now.
There will be no major US economic releases on Wednesday, so dollar bulls will be at the mercy of US bond yields. However, the speeches of the Fed officials could influence the price dynamics of the dollar and give a bit of a boost to gold. Traders will follow signals from broader risk sentiment to take advantage of short-term opportunities.
However, the fundamental backdrop continues to tilt in favor of the bearish traders. This, in turn, suggests that any rally attempt could be seen as a selling opportunity and risks fading quickly. Gold still looks vulnerable to retest intermediate support at $1,689-$1,688 before finally falling to a recent years low around the $1,680 area.
Technical levels to watch
Source: Fx Street
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