- Gold prices reversed declines in Asian trading on Monday amid a mild sell-off in the US dollar.
- Expectations that the Fed will pause its rate cutting cycle could keep XAU/USD in check amid a positive risk tone.
- Traders are now eagerly awaiting U.S. President-elect Donald Trump's inaugural address, which will provide fresh stimulus.
Gold prices (XAU/USD) attracted bullish buyers near $2,689 during Monday's Asian session, and for now, the retracement decline from last week's over one-month high has stopped. It seems like it is. The U.S. dollar (USD) started the new year weakly, eroding some of Friday's positive move amid expectations the Federal Reserve will cut interest rates twice this year on signs of slowing U.S. inflation. . This, combined with uncertainty over President-elect Donald Trump's tariff plans, sent the price of the safe-haven precious metal above $2,700 in the past hour.
Meanwhile, expectations that President Trump's protectionist policies could push up inflation and force the Federal Reserve to maintain its hawkish stance may deter USD bears from making aggressive bearish investments. This, combined with easing tensions in the Middle East and hopes that President Trump can ease restrictions on Russia in exchange for a deal to end the war in Ukraine, could help cap the upside in gold prices, where no concessions will be made. be. Traders may also choose to wait for President Trump's inaugural address before taking a firmer look at the direction of the day, with the U.S. on holiday to commemorate Martin Luther King Jr.
Gold prices supported by modest USD weakness, betting on further Fed rate cuts in 2025
- Gold prices rose for the third consecutive week on expectations that the US Federal Reserve will not rule out further interest rate cuts in 2025, which will benefit gold prices.
- Expectations were boosted by last week's release of the US Producer Price Index (PPI) and Consumer Price Index (CPI) showing that US inflation pressures eased in December.
- In addition, Fed Director Christopher Waller said last Thursday that inflation would continue to ease and the US central bank would likely be able to cut interest rates sooner than expected.
- The US dollar failed to capitalize on Friday's positive developments, coupled with concerns about US President-elect Donald Trump's crippling trade tariffs, supporting safe-haven XAU/USD.
- Against the backdrop of the ceasefire agreement between Israel and Hamas, expectations that President Trump will ease restrictions on Russia in exchange for a deal to end the war in Ukraine continue to support a positive risk tone.
- Additionally, the US central bank is expected to pause its rate cutting cycle later this month on hopes that President Trump's policies could stimulate inflation and put a cap on the non-yielding yellow metal.
- Traders may also hold back on bets on the positive side ahead of President Trump's inaugural address later this Monday and the U.S. holiday marking the Martin Luther King Jr. holiday.
If the $2,724-$2,725 barrier is definitively cleared, gold prices may accelerate their upward trend.
From a technical standpoint, any subsequent rally is likely to encounter resistance near the $2,724-$2,725 region, or the $2,715 region prior to the one-month high set last Thursday. Given that the oscillator on the daily chart is gaining positive traction, follow-through buying should pave the way for a move towards the intermediate hurdle of $2,745 on its way to the $2,760-$2,762 area. . XAU/USD could eventually aim to challenge its all-time high near $2,790, set in October 2024.
On the contrary, a significant decline below the immediate support of $2,700-2,690 could be seen as a buying opportunity and remain confined around $2,662-2,662. The latter serves as a key point, below which gold prices could fall to the $2,635 zone on the way to the $2,620-$2,615 confluence. This consists of a short-term uptrend line extending from the November swing low and the 100-day exponential. Moving average (EMA).
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.
