Gold has managed to find a modicum of support at the $2,660 level, yet its attempts to ascend have been circumscribed. After relinquishing prior gains, the price of gold has dipped below $2,700, pressured by the ascent in US yields.
The disparity in monetary policies between the Federal Reserve and other major central banks has lent strength to the US Dollar, thereby exerting downward pressure on gold. The XAU/USD pair is increasingly feeling the pinch of negative forces, with its sights set on the $2,660 mark.
During Friday’s early American trading session, gold (XAU/USD) has exhibited a slight recovery from its session lows of $2,660. The US Dollar index, which had reached two-week highs, is now undergoing a significant reversal. This shift has afforded some reprieve to gold, although the upward trajectory of US Treasury yields is likely to restrain potential buyers.
This week’s US economic data has painted a picture of a resilient economy with a pickup in inflation. President-elect Donald Trump’s proposed high tariffs on imports and restrictions on immigration are anticipated to drive up consumer prices, compelling the Federal Reserve to approach monetary easing with caution in the coming year.
In contrast, most major central banks, such as the European Central Bank, the Bank of Canada, and the Swiss National Bank, which have been more aggressive in cutting rates this week, are expected to continue on this path. This has bolstered the US Dollar, which has appreciated by over 1% this week, to the detriment of gold prices.
Daily Digest: Gold’s Weekly Gains Diminish Amid a Robust US Dollar
Gold was poised for a moderate climb this week. The geopolitical unrest in the Middle East initially provided a safety net for the precious metal. However, as market tensions abated and attention pivoted to the US economy, the positive momentum waned.
Thursday’s data revealed that US Jobless Claims rose to 242K, defying expectations of a slight dip to 220K from the previous week’s 225K. Meanwhile, US Producer Prices presented a mixed bag, with the headline PPI accelerating at a 0.4% clip, double the expected 0.2% and up from 0.3% in October. The core PPI, on the other hand, eased to 0.2% from 0.3% the prior month.
These figures have solidified expectations of a Fed rate cut next week, spurring a muted rally in gold prices. Nevertheless, the US Dollar has reasserted its upward trend as investors have come to grips with the likelihood of only gradual rate cuts by the Fed in 2025.
In Europe, the ECB trimmed rates by 0.25% to 3%, despite the wishes of some dovish members who had advocated for more substantial cuts. The SNB’s unexpected and sizeable rate reduction, accompanied by hints of further easing, caught markets off guard.
These decisions have accentuated the divergence in forward guidance between the Fed and other major central banks, furnishing crucial support to the US Dollar. Earlier in the week, the acceleration in US consumer prices to their fastest pace in seven months has added to the evidence that the cooling inflationary trend has reversed.
Technical Analysis: XAU/USD Facing Mounting Bearish Pressure
Gold’s rally was stymied once again at the $2,720 resistance zone earlier this week, and the precious metal has since trended lower. The bears seem to be seizing control, with the aim of retesting the upper limit of last week’s range, which lies between $2,660 and $2,665.
Should the price dip further, the pair may encounter support at the December 9 low of approximately $2,630, before potentially testing the channel bottom and the lows of November 25, 26, and December 5, which hover around $2,610.
On the upside, any attempts to climb are likely to face resistance at the psychological level of $2,700 and the previously mentioned $2,730, which marked the highs on November 22 and December 11.
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