Gold Price Forecast: XAU/USD elusive recovery toward $1,780, Fed eyed

• Gold posts fresh gains for the fourth straight session on Wednesday.
• Higher US Treasury yields underpin the demand for the US dollar.
• FOMC volatility, improved risk sentiment exerts pressure on the higher side.

Gold prices prints minute gains on Wednesday and lacks conviction to break $1,780 convincingly due to sudden uptick in the greenback following a n show from the Bank of Japan (BOJ).

The US Dollar Index, which tracks the performance of the greenback against the basket of six major currencies, remains strong above 92.20, while US benchmark 10-year Treasury yields record another session of gains ahead of the crucial FOMC meeting.

The Bank of Japan (BOJ) left its key short-term interest rate unchanged at -0.1% and the bond yield target at around 0% during its September meeting. The economic view pointed out the bleak employment and income situation due to COVID-19 pandemic. 

Now Investors turn their attention to the Fed's two-day meeting, which is due to conclude on Wednesday as they focus on new signals on the tapering timeline. The US central bank is also likely to provide an outlook on interest rate hikes.

Gold is generally considered as a hedge against inflation and currency volatility. A Hawkish move by the Federal Reserve would diminish gold’s appeal. If the Fed increases rate hike in its monetary policy meeting that would also raise the opportunity cost of holding the non-interest bearing asset.

 Technical levels

Gold prices have rebounded from the 61.8% Fibonacci retracement, which is extending from the low made on September 9 at $1,687.78 to $1,754. 

XAU/USD daily chart

The Moving Average Convergence Divergence (MACD) holds below the midline  with a neutral stance . Any downtick in the MACD indicator would confirm the downside momentum and the prices would approach toward the $1,750 horizontal support level.

A daily close below Monday low could trigger a fresh round of selling in the precious metal. XAU/USD bears would target the low of August 11 at $1,724.

Alternatively, the formation of a Doji candlestick suggests indecisiveness among traders at the upper level. If prices reverse direction then the first upside target would appear at  the 38.2% Fibonacci retracement level at $1,785.

XAU/USD additional levels