Gold Price Consolidates Above $1,950 as US Dollar Gains Momentum and Market Sentiment Remains Cautious

Posted Monday, July 17, 2023 by
Arslan Butt • 2 min read

GOLD prices started the new week with a quiet trading session, hovering just above the $1,950 level in a narrow range.

This sideways movement can be viewed as a positive consolidation phase, although caution is advised before expecting a significant downward correction from the one-month peak reached on Friday.

The surge in consumer confidence in the United States has supported the US Dollar, which has held steady above its lowest level since April 2022. This has acted as a headwind for gold prices. The preliminary University of Michigan Consumer Confidence Index for July surpassed even the most optimistic estimates, reaching its highest level since September 2021.

While expectations for inflation over the next year edged slightly higher, they remained lower than the peak seen in April 2022. Recent reports, such as the US Consumer Price Index (CPI) and Producer Price Index (PPI), indicate a moderation in consumer prices and the smallest annual rise in nearly three years, respectively. These factors, along with signs of a cooling US labor market, suggest that the Federal Reserve (Fed) is nearing the end of its tightening cycle.

Investors now expect the Fed to hold interest rates steady after the anticipated 25 basis points lift-off in July.

Despite Friday’s modest recovery, the US Dollar is unable to capitalize on its gains, which should provide some support to GOLD prices.Additionally, a slight decline in US equity futures could act as a tailwind for the safe-haven appeal of gold and help limit any potential downside, at least for the time being. Market participants are now awaiting Chinese macro data, which could influence risk sentiment and potentially provide a boost to gold prices.

Considering the overall fundamental backdrop, the path of least resistance for the XAU/USD pair appears to be on the upside. Therefore, any declines in gold prices might still be viewed as buying opportunities, and downside risks are likely to be cushioned, at least in the near term.

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