- Gold prices remain under strong selling pressure as the Trump trade continues.
- The U.S. dollar hit a new year-to-date high on Thursday on optimism about strong U.S. economic growth.
- Rising U.S. Treasury yields are also helping to steer flows away from the lower-yielding yellow metal.
Gold prices (XAU/USD) attracted sellers for the fifth day in a row, falling to their lowest levels since September 19, around $2,559-$2,558, during Thursday's Asian session. The US dollar (USD) extended its post-election rally and hit a new year-to-date high on expectations that President-elect Donald Trump's policies will spur growth. This is seen as a key factor that continues to weigh on USD-denominated products.
Meanwhile, investors believe that expected protectionist tariffs from the new Trump administration could push up inflation and force the Federal Reserve to halt its easing cycle. Additionally, U.S. economic data released on Wednesday pointed to slowing progress in curbing inflation, potentially reducing the number of interest rate cuts next year. This is still supporting U.S. Treasury yields higher and also helping to keep capital flows away from non-yielding gold prices.
Separately, a generally positive trend across global stock markets has put further pressure on safe-haven precious metals, supporting the prospect of further declines. Traders are now anxiously awaiting the release of the US Producer Price Index (PPI) in search of near-term opportunities. However, the focus remains on Fed Chairman Jerome Powell's speech, which could provide clues about future interest rate cuts and provide fresh impetus to gold prices.
Gold prices continue to fall as US dollar and US Treasury yields rise on Trump trade
- The U.S. Bureau of Labor Statistics reported Wednesday that the composite U.S. Consumer Price Index (CPI) rose 0.2% in October and has risen 2.6% over the past 12 months.
- The core index, which excludes the more volatile food and energy categories, increased by 0.3% last month and by 3.3% compared to the same period last year.
- The data reaffirmed market expectations that the US Federal Reserve will cut interest rates for the third time in December due to a weakening labor market.
- The probability of another 25 basis point rate cut at the next FOMC meeting rose to more than 80% from less than 60% on Tuesday, according to CME Group's FedWatch tool.
- Commenting on the report, Dallas Governor Rory Logan said the central bank had made significant progress in curbing inflation, but it needed to proceed with caution.
- St. Louis Fed President Albert Moussallem said the risk of rising inflation is increasing and the persistence of inflation is making it difficult for the central bank to continue lowering interest rates.
- Kansas Fed President Jeffrey Schmidt, in a rare appearance, said it remains to be seen how far the U.S. central bank will cut interest rates and where it will settle.
- President-elect Donald Trump's pledge to cut taxes and raise import tariffs could accelerate inflation, limiting the Fed's room to cut interest rates going forward.
- President Trump's trade optimism has pushed the 10-year Treasury yield near multi-month highs and pushed the U.S. dollar to its highest level since November 2023.
- Thursday's U.S. economic report will include the customary weekly numbers of new jobless claims and producer price index, ahead of the appearance of Federal Reserve Chairman Jerome Powell.
Gold price currently looks vulnerable and could test the confluence of support between $2,542 and $2,538
From a technical perspective, an overnight break below the $2,600 mark, which coincides with the 38.2% Fibonacci retracement level of the June-October bull market, is seen as another trigger for bearish traders. Ta. This, along with the negative oscillator on the daily chart, suggests that the path of least resistance for gold prices remains to the downside, supporting the outlook for a decline towards confluence support at $2,542-$2,538. There is. This area consists of the 100-day simple moving average (SMA) and 50% Fibo. A break above this level would extend the recent sharp pullback from all-time highs and expose the psychological mark of $2,500.
On the contrary, any recovery attempt may face resistance near the Asian session highs, i.e. around $2,580, above the $2,600 round figure. Sustained strength above the latter could prompt a rise in short covering towards the static barrier at $2,630-$2,632, and if cleared, a move towards the next relevant hurdle around $2,660. The path should be opened.
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.
