Gold price retreats further from multi-month top set on Friday on stronger USD
- Gold price kicks off the new week on a weaker note amid a modest USD recovery.
- Fed rate cut bets and sliding US bond yields might cap any further USD move up.
- Renewed trade war fears could help limit losses for the safe-haven XAU/USD pair.
Gold price (XAU/USD) attracts some selling at the start of a new week and moves away from the vicinity of the all-time peak, or its highest level since late October, around the $2,786 region touched on Friday. The US Dollar (USD) staged a modest recovery after registering its worst week since November 2023 and turned out to be a key factor undermining the commodity. That said, the fundamental backdrop seems tilted in favor of bulls and supports prospects for the emergence of some dip-buying at lower levels.
The global risk sentiment takes a hit in reaction to US President Donald Trump's decision to impose tariffs on all imports from Colombia, which revived trade war fears. Furthermore, the possibility that the Federal Reserve (Fed) would cut interest rates twice by the end of this year, along with the flight to safety, triggers a fresh leg down in the US Treasury bond yields. This, in turn, might hold back the USD bulls from placing aggressive bets and help limit any meaningful downside for the non-yielding Gold price.
Gold price is pressured by a goodish pickup in the USD demand; the downside seems limited
- The US Dollar, which tracks the Greenback against a basket of currencies, climbs nearly 0.25% amid reviving concerns about US President Donald Trump's trade policies and prompts some selling around the Gold price on Monday.
- Trump ordered his Administration to introduce emergency 25% tariffs on all goods coming from Colombia after the Colombian government refused to allow two US military planes carrying deported migrants to land in the country.
- Trump warned that the tariffs will increase to 50% by next week if the Latin American country refuses to comply with his immigration policies, fueling trade war fears and tempering investors' appetite for riskier assets.
- Furthermore, the Wall Street Journal (WSJ) reported that momentum is growing among Trump’s advisers to place 25% tariffs on Mexico and Canada as soon as February 1, without waiting for negotiations or talks.
- In the latest development, the White House confirmed on Monday that Colombia has agreed to all of Trump’s terms, including unrestricted acceptance of all illegal aliens from Colombia returned from the US.
- Meanwhile, Trump said last Thursday that he will demand that interest rates drop immediately, lifting bets that the Federal Reserve would lower borrowing costs further in 2025 and dragging the US Treasury bond yields lower.
- This could act as a headwind for the USD and help limit the downside for the XAU/USD, warranting some caution before confirming that the recent positive move witnessed over the past month or so has run out of steam.
- Traders now look to the US economic docket – featuring Durable Goods Orders, the Conference Board's Consumer Confidence Index and the Richmond Manufacturing Index – for some impetus later during the US session.
Gold price could attract some dip-buying near the $2,736 area amid a bullish technical setup
Any subsequent slide below the $2,750-2,748 zone is likely to find support near the $2,736 area ahead of the $2,725-2,720 strong resistance breakpoint. The latter should act as a key pivotal point, which if broken might prompt some technical selling and drag the Gold price below the $2,700 mark, towards the next relevant support near the $2,665-2,662 area.
On the flip side, momentum beyond the $2,772-2,773 immediate hurdle should pave the way for a move back towards the all-time peak, around the $2,790 region touched in October. Some follow-through buying, leading to a strength beyond the $2,800 mark, will be seen as a fresh trigger for bullish traders and pave the way for an extension of the positive move.
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.
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