Gold price turned lower for the second straight day on Monday, despite limited downside. The decrease in price is partly due to the Fed’s hawkish signal, supportive of elevated US bond yields. Geopolitical risks and trade war fears may continue to offer support to the safe-haven XAU/USD. Traders are advised to wait for strong follow-through selling before predicting an extension of the retracement slide from the previous high.
The US Dollar remains close to a two-year high due to the Federal Reserve’s hawkish signal of fewer rate cuts in 2025. President-elect Donald Trump’s expansionary policies also sustain the Greenback’s strength, acting as a barrier to gold’s price rise. However, ongoing geopolitical risks from conflicts like the Russia-Ukraine war and tensions in the Middle East should limit losses for gold. Data like the final US Services PMI and Factory Orders could provide more market movements later in the North American session.
The prospects of a slower pace of rate cuts by the Fed and improved US Manufacturing PMI have contributed to the decline in gold price. The elevated US Treasury bond yields, in conjunction with the latest news from the San Francisco Fed President, have also kept gold at a standstill. Furthermore, important US macroeconomic data releases are anticipated this week, including the Nonfarm Payrolls report. Recent attacks in Gaza, the West Bank, and between Ukraine and Russia have added even more geopolitical tension to the mix.
From a technical standpoint, gold could reach the 100-day SMA support near $2,625 before potentially dropping to the December swing low around $2,583. On the positive side, a break above $2,647 could lead to a rally back to the $2,665 mark. Central banks are significant holders of gold reserves, indicating trust in the precious metal during turbulent times. Gold’s inverse correlation with the US Dollar and US Treasuries demonstrates its safe-haven status.
Overall, gold’s price movements are influenced by various factors, including geopolitical instability, recessions, and interest rates. The asset’s performance is closely tied to the strength of the US Dollar. As the world’s oldest form of currency, gold continues to be a popular choice for investors seeking stability and security in uncertain times.
