Gold Price Analysis: XAU/USD drops to over one-week lows ahead of FOMC

• A combination of factors weighed on gold for the second straight session on Wednesday.
• Rallying US bond yields helped revive the USD demand and exerted pressure on the metal.
• COVID-19 jitters could help limit any further losses ahead of the latest FOMC policy decision.

Gold dropped to one-and-half-week lows during the mid-European session, albeit recovered a bit thereafter. The commodity was last seen trading around the $1,769 region, still down over 0.60% for the day.

The previous metal added to the previous day's modest losses and witnessed some follow-through selling for the second consecutive session on Wednesday. The downfall was sponsored by a goodish pickup in the US dollar demand, which tends to drive flows away from the dollar-denominated commodity.

The greenback remained well supported by some strong follow-through move up in the US Treasury bond yields. The intraday USD uptick could further be attributed to some repositioning trade ahead of the latest monetary policy update by the FOMC, scheduled to announce later during the US session.

The Fed is widely expected to leave its monetary policy settings unchanged. That said, the continuous rise in inflation expectations, which might force the Fed to start laying the groundwork for a future policy tightening soon. Hence, the key focus will be on Fed Chair Jerome Powell's comments.

Any hawkish signals should provide a strong lift to the USD and prompt some aggressive selling around the non-yielding yellow metal. However, worries that surging COVID-19 cases in some countries could derail the global economic recovery might help limit losses for the safe-haven XAU/USD.

Apart from this, investors will also monitor US President Joe Biden’s address to a joint session of Congress. Earlier this Wednesday, Biden announced a $1.8 trillion proposal that covers education and aid to families, which will be funded by tax hikes wealthy and households making over $1 million.

From a technical perspective, the XAU/USD, so far, has managed to hold defend the double-bottom neckline resistance breakpoint, now turned support near the $1,765-60 region. Sustained weakness below will negate any positive bias and turn the metal vulnerable to retest the $1,725 support area.

Technical levels to watch