• Gold witnessed some selling on Thursday and was pressured by a combination of factors.
• Hawkish Fed expectations underpinned the USD and exerted pressure on the commodity.
• Recession fears weighed on investors’ sentiment and should limit losses for the XAUUSD.

Gold continued with its struggle to gain any meaningful traction and remained below the very important 200-day SMA through the early part of the European session. The XAUUSD was last seen trading just below the $1,935 level, down over 0.25% for the day.

The markets seem convinced that the Fed would retain its aggressive policy tightening path and have been pricing in another 75 bps rate hike at the next FOMC meeting in July. The bets were reaffirmed by Fed Chair Jerome Powell, saying that the ongoing rate increases will be appropriate. During his testimony before the Senate Banking Committee, Powell added that Fed is strongly committed to bringing inflation back down and the pace of future rate increases will continue to depend on incoming data. This, in turn, was seen as a key factor that continued acting as a headwind for the non-yielding gold.

Apart from this, the emergence of fresh US dollar buying exerted some downward pressure on the dollar-denominated commodity. The downside, however, seems cushioned, at least for the time being, amid the prevalent risk-off mood, which tends to benefit the safe-haven gold. The market sentiment remains fragile amid doubts that major central banks could hike interest rates to curb soaring inflation without affecting economic growth. Adding to this, the disappointing release of the flash Eurozone PMI prints for June added to worries about a possible recession and weighed on investors' sentiment.

The global flight to safety dragged the US Treasury bond yields lower, which might hold back the USD bulls from placing aggressive bets and further help limit losses for gold. That said, acceptance below a technically significant 200-day SMA favours bearish traders and suggests that the path of least resistance for spot prices is to the downside. It, however, would be prudent to wait for strong follow-through selling before traders start positioning for any further near-term depreciating move. Market participants now look forward to Fed Chair Jerome Powell's second day of testimony for a fresh trading impetus.

Technical levels to watch