XAUUSD remains vulnerable amid rate hike bets, await fresh catalyst

• Gold extended its sideways consolidative price move for the third straight day on Thursday.
• Aggressive Fed rate hike bets, elevated US bond yields acted as a headwind for the metal.
• Recession fears continued weighing on investors’ sentiment and helped limit the downside.

Gold continued with its struggle to gain any meaningful traction and extended its consolidative price move for the third successive day on Thursday. The XAUUSD remained confined in a narrow trading band through the early European session and was last seen trading just below the $1,815 level.

Fed Chair Jerome Powell’s hawkish comments on Tuesday reaffirmed market expectations for a more aggressive policy tightening by the US central bank. Speaking at a Wall Street Journal event, Powell said that he will back interest rate increases until prices start falling back toward a healthy level. The Fed’s determination to fight inflation remained supportive of elevated US Treasury bond yields and turned out to be a key factor that acted as a headwind for the non-yielding gold.

The downside, however, remains cushioned amid concerns about softening global economic growth, which continued weighing on investors’ sentiment and should benefit the safe-haven XAUUSD. The prospects for a more aggressive policy tightening by the Fed, along with the Russia-Ukraine war and extended COVID-19 lockdowns in China, have been fueling recession fears. Apart from this, modest US dollar downtick offered additional support to the dollar-denominated gold, at least for the time being.

The mixed fundamental backdrop held back traders from placing aggressive bets around gold, which, in turn, has led to subdued price moves over the past three trading sessions. Looking at the technical picture, the recent bounce from the lowest level since late January touched earlier this week faltered near the very important 200-day SMA on Tuesday. Furthermore, the commodity’s inability to attract any meaningful buyers suggests that the path of least resistance is to the downside.

Market participants now look forward to the US economic docket, featuring the release of the Philly Fed Manufacturing Index, the usual Weekly Initial Jobless Claims and Existing Home Sales data. Apart from this, the US bond yields, will influence the USD price dynamics and provide some 
impetus to gold. Apart from this, traders will take cues from the broader market risk sentiment to grab short-term opportunities.

Technical levels to watch