Fundamental analysis of XAU/USD
Gold prices are showing signs of instability at the start of the new week, fluctuating slightly in the 1923-1925 range. The volatile XAU/USD pair is fluctuating under the influence of multiple contrasting factors. An uncertain global economic backdrop, fueled by sluggish data from China and ongoing trade tensions between the US and China, reinforces gold's appeal as a safe haven asset.
Disappointing U.S. jobs data last week raised questions about the viability of the labor market, casting a shadow over the Federal Reserve's interest rate plans, pushed oil prices up, and gold prices rose, offsetting downward pressure from a weaker dollar and falling bond yields. Despite the weak non-farm payroll employment numbers, wage growth continues to indicate tightness in the labor market and the falling unemployment rate points to robust growth in the U.S. economy. Despite these indicators, traders seem to be increasingly skeptical of future rate hikes. An interesting trend is that many countries are increasing their gold holdings, as evidenced by a recent Invesco survey, in response to the threat of potential Western sanctions, such as in the case of Russia.
Growing demand for the U.S. dollar acts as a counterbalance to the precious metal's important upside momentum. A series of disappointing economic data released in China, including a sharply falling producer price index and record consumer inflation, has raised concerns about the growth rate of the world's second largest economy. In addition, the threat of escalating trade tensions between the U.S. and China continues to undermine investor confidence. On the other hand, the growing demand for the US dollar is reducing the dynamics of gold prices. The recent decline in the unemployment rate coupled with strong wage growth is boosting confidence in a strong US labor market. These factors are fueling speculation that the Fed may raise rates by 25 basis points at its next meeting scheduled for July 25-26. Investors should wait for the next U.S. consumer inflation report on Wednesday. The results could determine the Fed's short-term policy and thereby influence it.
Technical analysis and scenarios:
In terms of technical analysis, gold prices are going through a volatile trading period. The Alligator indicator shows the blue line (jaw) dipping below the green line (lips) and red line (teeth), which usually indicates the beginning of an uptrend. However, the Awesome Oscillator (AO) and Accelerator Oscillator (AC) indicate divergence by being in the gray area. This divergence is not a strong signal to initiate a trading position, so it is recommended to proceed with caution.
Main scenario (BUY)
Recommended entry level: 1932.00.
Take Profit: 1953.00.
Stop loss: 1925.00.
Alternative scenario (SELL)
Recommended entry level: 1893.00.
Take Profit: 1855.00.
Stop loss: 1925.00.