- Gold price attracts sellers for the second straight day amid a broadly stronger USD.
- The risk-off mood and sliding US bond yields do little to support the precious metal.
- Traders now look forward to the US PCE Price Index for some meaningful impetus.
Gold price (XAU/USD) drifts lower for the second straight day – also marking the third day of a negative move in the previous four – and drops to over a two-week low, around the $2,861-2,860 region during the Asian session on Friday. The US Dollar (USD) prolongs this week’s recovery move from its lowest level since December 10 for the third consecutive day amid bets that the Federal Reserve (Fed) would stick to its hawkish stance on the back of still-elevated inflation. This, in turn, is seen as a key factor driving flows away from the non-yielding yellow metal.
Traders, however, might opt to wait for the release of the US Personal Consumption Expenditure (PCE) Price Index data for cues about the Fed’s rate-cut path and before placing fresh directional bets around the Gold price. In the meantime, the uncertainty around US President Donald Trump’s tariff plans, along with the risk-off impulse, could lend support to the safe-haven precious metal. The global flight to safety triggers a fresh leg down in the US Treasury bond yields, which might further contribute to limiting losses for the XAU/USD and warrants caution for bears.
Daily Digest Market Movers: Gold price is pressured by some follow-through USD buying
- Data released on Thursday revealed that inflation in the US continues to rise and backs the case for the Federal Reserve to hold interest rates steady. This assists the US Dollar in building on its recovery from over a two-month low and drags the non-yielding Gold price to over a two-week low on Friday.
- The US Bureau of Economic Analysis published the second reading of the US Gross Domestic Product, which showed that the economy expanded as estimated previously, by a 2.3% annualized pace during the final quarter of 2024. Moreover, the GDP Price Index rose 2.4% compared to the initial estimate of 2.2%.
- This comes on top of worries that US President Donald Trump’s policies would reignite inflation. Furthermore, Fed officials remain wary of future interest rate cuts amid sticky inflation, which continues to underpin the USD and contributes to driving flows away from the non-yielding yellow metal.
- Kansas City Fed President Jeff Schmid said on Thursday that recent surveys indicated a rise in consumer inflation expectations and that the central bank must stay focused on fully containing price pressures.
- Adding to this, Cleveland Fed President Beth Hammack noted that interest rates are likely on hold for the time being as inflation data starts to pose a growing problem for central policymakers.
- Separately, Philadelphia Fed President Patrick Harker noted that progress toward the 2% inflation target has slowed and that the policy rate remains restrictive to continue putting downward pressure on inflation.
- Hence, the market focus will remain glued to the release of the US Personal Consumption Expenditure (PCE) Price Index, due later during the North American session. The crucial inflation data will influence the Fed’s interest rate outlook, which will drive the USD and provide some meaningful impetus to the XAU/USD pair.
- Meanwhile, investors remain worried about the potential economic fallout from Trump’s tariff plans. In fact, Trump said that his proposed tariffs on Canada and Mexico would come into effect on March 4 as scheduled and has also threatened to announce a 25% tariff on imports from the European Union.
Gold price turns vulnerable; breakdown below the 23.6% Fibo. level support in play
From a technical perspective, the latest leg down has now dragged the Gold price below the 23.6% Fibonacci retracement level of the December-February rally. Moreover, oscillators on the daily chart have just started gaining negative traction, and support prospects for an extension of this week’s corrective pullback from the all-time peak. Some follow-through selling below the $2,856-2,855 horizontal zone will reaffirm the negative bias and drag the XAU/USD pair to the next relevant support near the $2,834 region en route to the 38.2% Fibo. level, around the $2,815-2,810 region. This is closely followed by the $2,800 mark, which if broken decisively will suggest that the commodity has topped out and also pave the way for deeper losses.
On the flip side, momentum back above the $2,867 area (23.6% Fibo. level) might now confront stiff resistance near the Asian session peak, around the $2,885 region, ahead of the $2,900 mark. A sustained strength beyond the latter could lift the Gold price further towards the $2,915 horizontal support breakpoint, which should now act as a key pivotal point. Some follow-through buying will shift the bias back in favor of bullish traders and expose the all-time peak, around the $2,956 region, with some intermediate hurdle near the $2,934 zone.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
Source: Gold price dives to over two-week low amid further USD recovery, ahead of US PCE data
