Gold price (XAU/USD) experienced a steep decline, falling over 2% on Monday to its lowest level since October 10 amidst strong US Dollar (USD) buying. This trend follows Donald Trump’s victory in the US presidential election, leading to hopes of economic growth and inflation from his expansionary policies. As a result, US Treasury bond yields have risen, pushing the USD to a four-month high and weighing heavily on gold as a non-yielding asset. However, concerns about Trump’s protectionist policies impacting the global economy have driven some haven flows, providing support for gold despite the USD bullish sentiment.
On the technical side, the Gold price decline below the 50-day Simple Moving Average (SMA) indicates a bearish trend. Oscillators on the daily chart also show negative traction, suggesting a downside path. If the price breaks below the $2,600 mark, it could lead to further declines towards the $2,540-2,539 confluence of 50% Fibonacci level and the 100-day SMA. A break above $2,632-2,635 could trigger a short-covering move towards $2,659-2.660, $2,684-2,685, and eventually $2,700 and $2,710 levels.
Centuries Gold plays a significant role as a store of value, medium of exchange, and safe-haven asset. Besides its use in jewelry, Gold is considered a hedge against inflation and depreciating currencies due to its independence from any issuer or government. Central banks are the largest Gold holders, buying Gold to diversify reserves, strengthen their currencies, and increase trust in solvency. Emerging economies like China, India, and Turkey have been rapidly accumulating Gold reserves, with central banks adding a record-high 1,136 tonnes in 2022.
Gold has an inverse correlation with the US Dollar and US Treasuries, major reserve and safe-haven assets. A weak Dollar tends to boost Gold prices, allowing investors to diversify holdings during turbulent times. Geopolitical instability, fears of a recession, and interest rates impact gold price movements. While lower interest rates support Gold prices, a strong Dollar can keep the price under control. Gold is most commonly priced in US Dollars (XAU/USD), making the Dollar’s strength a key determinant of Gold price movements.
Investors are closely monitoring speeches from influential FOMC members, including Fed Chair Jerome Powell, and upcoming US consumer inflation and Producer Price Index (PPI) releases for clues on future interest rates and monetary policy decisions. The market is currently pricing in a 65% chance of another 25-basis-point rate cut by the Fed in December. Traders are cautious amid uncertainties surrounding global trade policies and the impact on economic growth and inflation. Gold price remains vulnerable to further downside pressure from the strong USD and rising US bond yields.
