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24 Oct 2022

Gold Price Forecast: XAU/USD slides below $1,650 level amid broad-based USD strength

  • Gold comes under renewed selling pressure on Monday amid a strong pickup in demand for the USD.
  • The prospects for more aggressive tightening by major central banks further weigh on the XAU/USD.
  • Recession fears could lend some support to the metal and warrant some caution for bearish traders.

Gold meets with a fresh supply near the $1,670 region, or over a one-week high set earlier this Monday and extends its intraday descent through the first half of the European session. The XAU/USD slides back below the $1,650 level and erodes a part of Friday's goodish rebound from the vicinity of the YTD low.

The US dollar makes a solid comeback and rebounds swiftly from over a two-week low, which, in turn, is seen as a key factor exerting downward pressure on the dollar-denominated gold. Despite reports that some Fed officials are signalling greater unease with oversized rate hikes, investors seem convinced that the US central bank will stick to its aggressive policy tightening cycle. This, in turn, remains supportive of elevated US Treasury bond yields and helps the greenback to regain positive traction.

Furthermore, other major central banks - the European Central Bank and the Bank of England- are also expected to deliver a jumbo rate hike at the upcoming policy meetings. This turns out to be another factor driving flows away from the non-yielding yellow metal. Apart from this, a slight recovery in the risk sentiment - as depicted by a positive tone around the equity markets - is also seen weighing on the safe-haven gold. That said, growing recession fears could help limit losses for the metal.

Investors remain concerned about the economic headwinds stemming from rapidly rising borrowing costs and the protracted Russia-Ukraine. This, along with China's strict zero-COVID policy, has been fueling concerns about a deeper global economic downturn. The mixed fundamental backdrop warrants some caution before placing aggressive bearish bets around gold and positioning for any further slide. Traders now look to the flash US PMI prints for some impetus later during the early North American session.

Technical levels to watch

 

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