On the eve of the release of important data on the US labor market, the bulls for XAU/USD preferred to take a break. From the level of June lows, the precious metal rose by more than 5.2% against the backdrop of geopolitical and political risks, as well as the shift in the time frame for the Fed's monetary tightening to a later than initially expected period. The pressured yield of US treasury bonds, the weak dollar and the Federal Reserve's concern for the fate of inflation - what would be better for gold?
Dynamics of gold and the USD index
Source: Trading Economics.
According to TD Securities, investors were overly optimistic about the idea of a mass normalization of monetary policy by the world's leading central banks. In fact, the Fed will gauge seven times before hiking the federal funds rate for the third time in 2017, while the ECB will gradually phase out its quantitative easing program. As a result, against the background of muted inflation, the real yield of US and European bonds will not repeat the June rally, which will bring about XAU/USD prices to $1,278 and $ 1,296 per ounce.
Standard Chartered noted that the rise in the precious metal's prices above $1,300 per ounce this year was due to the escalation of geopolitical conflicts. Therefore, until something like it occurs once again, gold would unlikely be able to move above the aforementioned mark.
In my opinion, further dynamics of the XAU/USD will depend on the development of the political turmoil in the United States. Congress holidays in August can reduce political tension, forcing investors to focus on economic indicators. In this regard, the acceleration of US GDP from 1.2% to 2.6% q/q in the second quarter and strong data on private sector employment from ADP for July (+178,000), which lays the foundation for a positive labor market report, creates prerequisites for the growth of the likelihood that the Fed tightens monetary policy, the yield of treasury bonds and the US dollar. These factors are "bearish" for the precious metal.
In September, the situation could radically change. The focus of investors will be on the problem regarding public debt ceiling. It was already reached in March. And in the beginning or in the middle of October, the Treasury will run out of reserves resources, which will lead to a technical default. We have already experienced all this in 2013. Back then, the US government was forced to leave for a two-week partial shutdown, which turned into a serious slowdown in the US economy at the turn of 2013-2014. In such conditions, as a rule, the demand for safe-haven assets is growing, and gold is able to acquire a second life.
Technically, the fate of XAU/USD will depend on the ability of the bulls to return prices to the borders of an upstream trading channel. The successful attack will raise the risks of continuing the rally in the direction of $1,295 with a subsequent uptrend recovery. On the other hand, the retreat will lead gold to form a support in the convergence zone $1248-1254 per ounce.
Gold, daily chart
