Gold experienced a significant drop of over 2.50% on Monday, as the US Dollar surged to a four-month high amid fears of escalating trade tensions under a potential second term for President Donald Trump. This led to the XAU/USD pair trading at $2,611 after reaching a daily high of $2,686. The non-yielding metal recorded its worst week in over five months following the results of the US presidential election, with the US Dollar Index (DXY) climbing 0.60% to 105.57.
The US Treasury market remained closed due to Veteran’s Day, while US equity markets fluctuated despite reaching record highs. It was reported that Blackrock and JPMorgan warned that the US bond sell-off is “far from over” amid concerns that Trump’s fiscal plans may increase inflation and the budget deficit. The Federal Reserve (Fed) is expected to lower rates by 25 basis points at the upcoming December meeting, with odds falling from 80% to 65% in the past week.
Minneapolis Fed President Neel Kashkari mentioned that they want confidence in inflation going back down to the 2% target, and if growth and productivity remain strong, the Fed may not cut rates by as much. Rumors of Robert Lighthizer taking a leadership role in the US trade office, as a strong supporter of tariffs, raised investor concerns and led to a drop in the price of gold. This speculation also led to fears that Fed Chair Jerome Powell may adopt a cautious approach regarding policy, reducing interest rate cuts next year to benefit the US Dollar.
Looking ahead this week, the US economic docket will influence the path of Gold as traders keep an eye on comments from Fed officials and key data releases on consumer and producer inflation, as well as Retail Sales. Gold prices fell as US real yields rose, with Fed Chair Jerome Powell not providing specific guidance on future policy in the latest rate cut.
The technical outlook for XAU/USD shows a decline in gold prices, with sellers targeting the $2,600 level. If this support is breached, further downside could be seen towards $2,603 and the 100-day Simple Moving Average (SMA) at $2,534. However, if Gold surpasses $2,700, buyers will focus on the 20-day SMA at $2,718 and levels above.
Gold has a significant historical role as a store of value and medium of exchange, currently seen as a safe-haven asset during turbulent times. Central banks are the largest holders of gold, adding substantial amounts to their reserves in 2022. Gold has an inverse correlation with the US Dollar and US Treasuries, making it an attractive investment choice for diversification during market uncertainties. Various factors like geopolitical instability, recession fears, and interest rate changes can impact gold prices, with the performance largely dependent on the behavior of the US Dollar.
