Fundamental analysis of XAU/USD
The XAU/USD pair continued to rise, recording a fourth consecutive day of upward trajectory and setting a new one-month high near $1963.50. The strongest dollar decline since April 2022 supported gold's gains. Expectations that the Fed's rate tightening cycle will end put pressure on the dollar, creating a favorable environment for gold. Market participants are confident that the Fed will keep rates unchanged after a scheduled 25 basis point hike at its July meeting. This sentiment was reinforced by the latest data that US consumer prices continued to decline in June, helping to ease inflationary concerns.
The U.S. Bureau of Labor Statistics reported that the overall consumer price index rose 0.2% in June from 4% a year earlier, the smallest increase on record. Meanwhile, the producer price index (PPI) for final demand in the U.S. rose just 0.1% in June, remaining virtually unchanged. Year-on-year PPI growth was revised downward to 0.1% in June from 0.9% in May, indicating a slowdown in growth and the lowest annual increase since August 2020. Precious metals were also impacted by the latest US jobs data, which showed weak job growth, potentially undermining the Fed's hawkish stance. Meanwhile, an unexpected drop in weekly jobless claims in the US suggests that the labor market is strengthening.
Against the backdrop of the US Dollar Index (DXY) falling to the key support level of 100.00, gold prices are slow to react positively. The market believes that the Federal Reserve will raise the rate only once this year, which led to a decline in the US Dollar Index. Market participants are currently awaiting preliminary data on US consumer sentiment and Michigan bond yields, which could affect the dollar's recovery. Analysts expect the XAU/USD pair to close in the green for the second week in a row and possibly record its best weekly close since May.
In short, gold prices are benefiting from a weaker dollar and a less optimistic outlook for US rate hikes. As recent economic data shows, the shift towards deflation is contributing to the Fed's dovish stance. Despite the presence of various uncertainties, gold investors remain bullish on the near-term outlook.
Technical analysis and scenarios:
The Alligator indicator with its wide open mouth and jaw set below the lips and teeth suggests that an uptrend prevails, albeit with some signs of caution. In addition, both the Awesome Oscillator (AO) and Accelerator Oscillator (AC) are in the red zone, confirming potential selling pressure in the near term.
Main Scenario (BUY)
Recommended entry level: 1969.50.
Take Profit: 1980.00.
Stop loss: 1963.00.
Alternative scenario (SELL)
Recommended entry level: 1938.50.
Take Profit: 1915.00.
Stop loss: 1950.00.