Gold Price Forecast: XAU/USD rebounds from over one-month low, upside seems limited

• Gold price gains some positive traction and draws support from a modest US Dollar weakness.
• Bets for more rate hikes by Federal Reserve and rising US bond yields might cap further gains.
• A positive tone around the US equity futures might also act as a headwind for the XAU/USD.

Gold price stages a modest recovery from its lowest level since July 7, around the $1,911-$1,910 area set during the Asian session this Friday and for now, seems to have snapped a four-day losing streak. The XAU/USD currently trades around the $1,915-$1,916 region, up over 0.10% for the day, though lacks bullish conviction and remains vulnerable. 

The US Dollar (USD) struggles to capitalize on the overnight solid rebound from over a one-week low touched in reaction to the softer consumer inflation figures from the United States (USD) and pulls back from the vicinity of the monthly peak. A softer Greenback is seen as a key factor driving flows towards the US Dollar-denominated Gold price. The USD downtick, meanwhile, lacks any fundamental catalyst and is more likely to remain limited in the wake of growing acceptance that the Federal Reserve (Fed) will stick to its hawkish stance.

The US Bureau of Labor Statistics (BLS) reported on Thursday that the headline US Consumer Price Index (CPI) rose less than expected, from 3% to 3.2% YoY rate in July. Adding to this, the Core CPI inflation, which excludes volatile food and energy prices, edged lower to 4.7% from 4.8% in June and indicated that some measures of underlying price pressures cooled significantly last month. The inflation, however, is way above the Fed’s 2% target and keeps the door for one-more 25 basis points (bps) rate hike by the end of this year wide open.

The prospects for further policy tightening by the Fed continue to push the US Treasury bond yields high, which should help limit the downside for the USD and cap gains for the non-yielding Gold price. Apart from this, a positive tone around the US equity futures might further contribute to keeping a lid on the safe-haven precious metal. This makes it prudent to wait for strong follow-through buying before confirming that the XAU/USD has formed a near-term bottom and that the recent downtrend witnessed over the past three weeks or so has run its course.

Market participants now look to the US economic docket, featuring the release of the Producer Price Index (PPI), along with the Preliminary Michigan Consumer Sentiment and Inflation Expectations. This, along with the US bond yields, might influence the USD price dynamics and provide some impetus to the Gold price. Apart from this, the broader risk sentiment should allow traders to grab short-term opportunities. Nevertheless, the XAU/USD remains on end in the red for the third successive week and post its lowest weekly closing since March.

Technical levels to watch

XAU/USD