XAU/USD edges higher on geopolitical risks, focus remains on FOMC

NEW YORK (Sept 21) Gold catches some bids during the early European session and climbs to a fresh daily high, around the $1,676 region, reversing a major part of the previous day's losses. The uptick is sponsored by reviving demand for safe-haven assets, though strong follow-through US dollar buying continues to cap gains for the XAU/USD.

Against the backdrop of concerns about a deeper global economic downturn, the risk of a further escalation in the Russia-Ukraine conflict drives some haven flows towards gold. In the latest development, Russian President Vladimir Putin announced partial military mobilization and tempers investors' appetite for riskier assets.

The anti-risk flow is reflected by an intraday pullback in the US Treasury bond yields, which is seen as another factor benefitting the non-yielding gold. That said, expectations that the Fed will stick to its aggressive policy tightening path and raise rates at a faster pace should act as a tailwind for the US bond yields.

In fact, the markets seem convinced that the US central bank will deliver another supersized 75 bps rate increase at the end of a two-day policy meeting on Wednesday. This remains supportive of the underlying bullish sentiment surrounding the USD, which might also contribute to keeping a lid on the dollar-denominated gold.

Furthermore, investors also seem reluctant to place aggressive bets and might prefer to move to the sidelines heading into the key central bank event risk. Market participants will look for fresh clues about the future rate-hike path. Hence, the focus will be on the updated economic projections and the so-called dot plot.

Apart from this, Fed Chair Jerome Powell's remarks at the post-meeting press conference will play a key role in influencing the near-term USD price dynamics. This, in turn, should help determine the next leg of a directional move for gold.

FXStreet