• Gold remained on the defensive through the early European session amid hawkish Fed expectations.
• The underlying bullish sentiment surrounding the USD further acted as a headwind for the commodity.
• A softer risk tone extended some support as investors await the release of the US jobs report (NFP).

Gold reversed modest intraday losses and was last seen trading around the $1,974-$1,975 region, nearly unchanged for the day during the early European session.

The spillover effect from the overnight broad sell-off on Wall Street weighed on investors' sentiment, which was evident from a softer tone around the equity markets. This, in turn, was seen as a key factor that extended some support to the safe-haven gold, though any meaningful upside remains elusive amid the prospects for a further policy tightening by the Fed.

Fed Chair Jerome Powell said on Wednesday that a 75 bps rate hike is not under active consideration, though stated that policymakers were ready to approve a 50 bps increase at upcoming meetings. Moreover, the markets are still pricing in a further 200 bps rate hike for the rest of 2022, which remained supportive of elevated US Treasury bond yields.

Apart from this, the underlying bullish sentiment surrounding the US dollar, which held steady near its highest level in two decades, further acted as a headwind for the dollar-denominated gold. The downside, however, seems cushioned as investors preferred to wait on the sidelines ahead of the release of the closely-watched US monthly jobs data.

The popularly known NFP report is expected to be consistent with tightening labour market conditions and likely back the case for additional Fed rate hikes. This, along with the emergence of fresh selling on Thursday, suggests that the path of least resistance for the non-yielding gold is to the downside and any attempted recovery could be seen as a selling opportunity.

Technical levels to watch