• Gold reverses an intraday dip to sub-$1,700 levels, though struggles to gain any meaningful traction.
• A modest USD weakness offers some support; bets for more aggressive Fed rate hikes continue to cap.
• Signs of stability in the equity markets also suggest that the path of least resistance is to the downside.

Gold shows resilience below the $1,700 mark for the second successive day and attracts some dip-buying on Wednesday. The XAU/USD sticks to a mild positive bias through the early North American session, though seems to struggle to capitalize on the move and remains below the $1,710 level.

Following the previous day's stronger US CPI-inspired rally, the US dollar edges lower and turns out to be a key factor offering some support to the dollar-denominated commodity. The modest USD downtick lacks any obvious fundamental catalyst and is more likely to remain limited amid expectations that the Fed will keep raising interest rates at a faster pace to tame inflation.

The implied odds for a full 1% rate hike at the September FOMC meeting stands at 34%. Moreover, the markets have also been pricing in another 75 bps rate hike move in November. This, in turn, lifts the yield on the rate-sensitive two-year US government bond to levels last seen in November 2007 and the benchmark 10-year Treasury note holds steady near the YTD peak touched in June.

The prospects for a more aggressive policy tightening by the Fed, along with elevated US Treasury bond yields, favours the USD bulls and caps the non-yielding gold. Apart from this, a modest recovery in the risk sentiment - as depicted by signs of stability in the equity markets - further contributes to keeping a lid on any meaningful upside for the safe-haven precious metal.

Looking at the broader picture, gold has been oscillating in a familiar band over the past two weeks or so. Given that the XAU/USD, so far, has been struggling to gain any meaningful traction, the range-bound price action might still be categorized as a bearish consolidation phase. This, in turn, suggests that the path of least resistance for the commodity is to the downside.

Technical levels to watch