Gold Price Forecast: XAU/USD remains confined in a narrow range above $1,920 level

• Gold price oscillates in a narrow trading band through the early European session on Monday.
• A weaker risk tone lends support to the XAU/USD, though resurgent USD demand caps gains.
• Traders also seem reluctant to place aggressive bets ahead of the US CPI report on Wednesday.

Gold price struggles to gain any meaningful traction on the first day of a new week and seesaws between tepid gains/minor losses through the early European session. The XAU/USD currently trades around the $1,924-$1,925 region, nearly unchanged for the day, and is influenced by a combination of diverging forces.

The prevalent risk-off environment - as depicted by a generally weaker tone around the equity markets - benefits traditional safe-haven assets and lends some support to the Gold price. A slew of weak economic data from China released over the past week or so, including the softer inflation figures on Monday, add to worries about slowing growth in the world's second-largest economy. In fact, China's Producer Price Index (PPI) declined at the fastest pace in seven-and-a-half years in June, while consumer inflation remained at its lowest level since 2021. Apart from this, the risk of a further escalation in trade conflicts between the United States (US) and China - the world's two largest economies - continues to weigh on investors' sentiment.

That said, a goodish pickup in the US Dollar (USD) demand is seen acting as a headwind for the Gold price. Despite a slight miss from the headline US Nonfarm Payrolls (NFP), the unexpected dip in the unemployment rate and persistently strong wage growth pointed to still-tight labor market conditions. This, in turn, reaffirmed market bets for a 25 basis points rate hike by the Federal Reserve (Fed) at its upcoming policy meeting on July 25-26 and allows the rate-sensitive two-year US government bond to stand tall just below its highest since June 2007. Furthermore, the benchmark 10-year US Treasury yield holds steady around the 4.0% mark and revives the USD demand, capping gains for the US Dollar-denominated commodity.

In the absence of any relevant market-moving US economic releases on Monday, the aforementioned mixed fundamental backdrop warrants caution before placing aggressive directional bets around the Gold price. Traders might also prefer to wait on the sidelines ahead of the latest US consumer inflation figures, due on Wednesday. The crucial US CPI report might influence the Fed's near-term policy outlook, which, in turn, will play a key role in driving the USD demand and providing some meaningful impetus to the XAU/USD.

Technical levels to watch