• A combination of factors prompted fresh selling around gold on Monday.
• Aggressive Fed rate hike bets, elevated US bond yields acted as a headwind.
• Sustained USD buying exerted additional downward pressure on the metal.
• The risk-off environment could help limit losses for the safe-haven XAUUSD.

Gold continued with its struggle to find acceptance above the very important 200-day SMA and met with a fresh supply on the first day of a new week. The XAUUSD remained depressed through the early European session and dropped to a fresh daily low, just below the $1,870 level in the last hour amid the prospects for a more aggressive policy tightening by the Fed.

Fed Chair Jerome Powell said last week that a 75 bps rate hike is not under active consideration. The markets, however, seem convinced that the US central bank would need to take a more drastic action to curb soaring inflation and are still pricing in a further 200 bps rate hike for the rest of 2022. This remained supportive of elevated US Treasury bond yields, which, in turn, undermined the non-yielding gold.

In fact, the yield on the benchmark 10-year US government bond climbed to its highest level in more than a decade and assisted the US dollar to stand tall near a two-decade high. This was seen as another factor that weighed on the dollar-denominated gold. That said, the prevalent risk-off environment could lend some support to the safe-haven precious metal and help limit any further losses, at least for the time being.

Firming expectations for rapid interest rate hikes in the US, along with strict COVID-19 lockdowns in China, have raised concerns about slowing global growth and a possible recession. This, in turn, tempered investors' appetite for riskier assets, which was evident from a generally weaker tone around the equity markets. The anti-risk flow warrants caution for bearish traders and before positioning for any further decline.

There isn't any major market-moving economic data due for release from the US, leaving the XAUUSD at the mercy of the USD price dynamics/US bond yields. Apart from this, traders will take cues from the broader market risk sentiment to grab short-term opportunities. The focus, however, would remain on the latest US consumer inflation figures on Wednesday. This would help determine the near-term trajectory for gold.

Technical levels to watch