XAU/USD grapples with resistance in the vicinity of the $1,910 multiweek low
Richard Adrian • 2 min read
The price of XAU/USD slightly declines in the Asian session on Monday, reaching the range of $1,910 to $1,911. This marks its lowest point since July 7 in the previous hour. Although there’s a minor downward movement within the day, it’s important to note that there isn’t a significant continuation of selling pressure. This calls for a cautious approach from aggressive bearish traders, suggesting that careful consideration is needed for those looking to capitalize on a potential extension of the downward trend observed over the past three weeks or thereabouts.
Anticipation of additional tightening measures by the Federal Reserve (Fed) propels the US Dollar to reach a new high in six weeks, creating a significant obstacle for the Gold price, which lacks yield. These expectations gained further support from the recent United States (US) Producer Price Index (PPI) figures for July, surpassing modest predictions. Notably, the US Bureau of Labor Statistics indicated a notable year-on-year increase of 0.8% in the PPI for final demand during the specified month, a substantial rise compared to the previous stagnant reading in June.
Amidst a backdrop of modest growth in consumer prices during July, the data indicates that the struggle to reestablish inflation within the Federal Reserve’s 2% target range is ongoing. This situation maintains the possibility of another 25 basis points (bps) increase in the Fed’s interest rates by the close of this year, while also fostering an environment conducive to a continued upward trajectory in US Treasury bond yields. Consequently, this dynamic remains supportive of a strengthening US Dollar, which consequently applies a downward force on the value of Gold priced in US Dollars.
However, apprehensions regarding deteriorating economic circumstances in China, coupled with geopolitical uncertainties, may offer a degree of backing to the safe-haven XAU/USD, potentially curbing its decline, at least temporarily. In the most recent event, a Russian warship discharged cautionary shots at a cargo vessel in the southwestern Black Sea on Sunday. This development follows Russia’s decision in July to suspend its involvement in a significant UN-mediated grain agreement that permitted Ukraine to ship agricultural goods through the Black Sea.
Still, the previously mentioned underlying fundamentals appear to strongly favor bearish traders, indicating that the prevailing direction for the Gold price continues to lean towards decline. Consequently, any efforts towards a rebound are prone to encountering selling pressure and run the risk of losing momentum swiftly. With no significant market-altering economic data anticipated for Monday, the movements in USD pricing will persist as a pivotal factor, exerting substantial influence on XAU/USD and generating prospects for short-term trading.