- Gold prices fell for the second day in a row on Monday, but the downside appears to be limited.
- The Fed's hawkish signals continue to support and put some pressure on US Treasury yields.
- Geopolitical risks and trade war concerns may continue to support the safe-haven XAU/USD.
Gold prices (XAU/USD) failed to capitalize on Monday's modest gains in Asian trading and are currently trading around $2,635, declining for the second day in a row. The US dollar (USD) remains close to its two-year high hit last Thursday on hawkish signals from the Federal Reserve that interest rate cuts will be less frequent in 2025. I am doing it. Furthermore, there is also an optimistic view of US President-elect Donald Trump's policies. Expansionary policy continues to support the greenback, which is seen as a headwind for the non-yielding yellow metal.
That said, persistent geopolitical risks stemming from the protracted Russia-Ukraine war and tensions in the Middle East, as well as concerns about President Trump's tariff plans, should limit losses for safe-haven gold prices. Therefore, it would be prudent to wait for a strong follow-through sell-off before placing a position on the extended retracement slide from Friday's $2,665 area, or almost three-week top. Traders are now anxiously awaiting the release of final US services PMI and factory orders data for some momentum after the North American session.
Gold prices fall on expectations that the pace of Fed interest rate cuts will slow
- The Institute for Supply Management (ISM) said Friday that the U.S. manufacturing PMI was 48. It said it had improved from 4 to 49.3, showing signs of resilience and potential for growth.
- This, along with expectations that the pace of rate cuts by the Federal Reserve will slow in 2025, continues to support higher US Treasury yields and hurt gold prices.
- Benchmark 10-year Treasury yields have hit their highest level since May 2, helping the U.S. dollar hold steady just below its two-year high hit last Thursday.
- San Francisco Fed President Mary Daly said Saturday that despite significant progress in reducing price pressures over the past two years, inflation remains uncomfortably above the 2% target.
- Investors will be faced with the release of key US macro data this week, including Friday's closely watched non-farm jobs report, ahead of the next Fed meeting later this month.
- Israeli forces continue to attack medical facilities in the Gaza Strip, and further Israeli attacks were reported in the occupied West Bank on Sunday, while the Houthis have stepped up attacks on Israel.
- Ukraine announced on Sunday that it had carried out surprise attacks on Russian forces in multiple areas of Kursk. The Russian Ministry of Defense also acknowledged Ukraine's counterattack.
Gold price could retest December lows if 100-day SMA support breaks
From a technical perspective, any subsequent decline could find good support near the 100-day simple moving average (SMA), which is currently anchored around $2,625. This is followed by the $2,600 mark, below which gold could fall to around December's monthly swing low of $2,583. Some follow-through selling will be seen as another trigger by bearish traders, paving the way for further losses.
Conversely, momentum above the Asian session high near $2,647 could push gold prices back to near $2,665, or multi-week highs. A subsequent rally could extend further towards intermediate resistance around the $2,681-$2,683 zone on the way to the $2,700 mark. The latter should serve as an important point, and if it can be definitively cleared, it will set the stage for an extension of the two-week uptrend.
Gold FAQ
Gold has played an important role in human history as it has been widely used as a store of value and a medium of exchange. Today, apart from their brilliance and use as jewellery, precious metals are widely seen as safe assets, meaning they are considered a good investment in turbulent times. Gold is also widely seen as a hedge against inflation and currency depreciation, as it is not dependent on any particular issuer or government.
Central banks are the largest holders of gold. With the aim of supporting their currencies in times of turmoil, central banks tend to purchase gold to diversify foreign exchange reserves and improve perceptions of economic and currency strength. High gold reserves can be a source of confidence in a country's solvency. Central banks added 1,136 tonnes of gold worth about $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest annual purchase amount since records began. Central banks in emerging countries such as China, India and Türkiye are rapidly increasing their gold reserves.
Gold has an inverse relationship with the US dollar and US Treasuries, which are major reserve and safe haven assets. Gold tends to rise when the dollar falls, allowing investors and central banks to diversify their assets during times of turmoil. Gold is also inversely correlated with risk assets. Rising stock markets tend to push gold prices down, while declines in riskier markets tend to favor the precious metal.
Prices may vary depending on various factors. Geopolitical instability and fears of a deep recession can cause the price of gold to quickly rise from its safe-haven status. Gold, a non-yielding asset, tends to rise when interest rates fall, but rising costs usually put pressure on the yellow metal. Still, most moves will depend on how the US dollar (USD) behaves, as the asset is priced in dollars (XAU/USD). A strong dollar tends to suppress gold prices, while a weak dollar can push gold prices up.
