Daily Price Outlook
Gold prices (XAU/USD) initially faced losses but managed to recover, trading above $2,700. However, the early drop was driven by a stronger US Dollar, which gained traction on the back of upcoming President-elect Donald Trump’s inauguration.
Although, the gains in the dollar could be limited possibly due to softer-than-expected US inflation data as it raises expectations of potential Fed rate cuts. On the other hand, the ongoing geopolitical tensions in the Middle East and the Russia-Ukraine conflict continue to drive demand for gold as a safe-haven asset.
US Dollar Gains Strength Amid Policy Concerns and Economic Data, Impacting Gold Prices
On the US front, the broad-based US dollar has gained traction, hovering around 109.30, supported by rising US Treasury yields. This boost in the Greenback comes amid concerns about former President Trump's policy proposals, such as imposing tariffs, extending tax cuts, and deporting illegal immigrants.
Analysts believe the future of US interest rates will depend on how these policies unfold, with Trump’s upcoming executive orders likely to play a key role.
Investors are also watching the Federal Reserve’s (Fed) next moves, with a majority expecting no change in rates at the January meeting but forecasting hikes starting in March.
Despite these developments, US Treasury yields have been lower, driven by growing expectations that the Fed might cut rates twice in 2025.
This has put downward pressure on yields, with the 2-year and 10-year US Treasury notes currently at 4.23% and 4.60%, respectively.
On the data front, US retail sales grew by just 0.4% in December, weaker than expected, signaling slower consumer spending.
The US Consumer Price Index (CPI) rose 2.9% annually, in line with expectations, with the core CPI, which excludes volatile food and energy prices, climbing 3.2%.
Therefore, the Federal Reserve has noted slight to moderate growth in the economy, driven by strong holiday sales, but manufacturing showed signs of slowing.
With mixed signals from economic data, traders are cautious about the outlook for the US economy, which could weigh on gold prices as the dollar remains strong and expectations for rate cuts fluctuate.
Geopolitical Tensions and Conflicts Drive Safe-Haven Demand for Gold
On the geopolitical front, ongoing tensions in the Middle East and the Russia-Ukraine conflict could drive more safe-haven flows into gold.
Russian forces gained control of two more settlements in Ukraine's Donetsk region, continuing their steady advance westward. As conflicts and uncertainties rise, investors often turn to gold as a safer investment, which could push gold prices higher.
Therefore, the combination of these geopolitical events, along with economic factors in the US, adds to the volatility, making gold an attractive option for those seeking stability in uncertain times.
GOLD (XAU/USD) – Technical Analysis
Gold (XAU/USD) is currently trading at $2,707.70, up 0.18%, as the market consolidates above the key support zone.
The metal faces immediate resistance at $2,736.52, with further barriers at $2,752.21. On the downside, support is seen at $2,676.58, followed by stronger levels at $2,659.46 and $2,641.38, which could provide a safety net against potential declines.
The 50-day Exponential Moving Average (EMA) stands at $2,683.19, reinforcing a bullish bias as long as prices remain above this level.
The pivot point at $2,722.01 remains a critical juncture; a sustained move above it could pave the way for further gains, while failure to hold this level may lead to increased selling pressure.
Technical indicators suggest that gold is maintaining an upward trajectory, with buyers likely to step in on dips. However, the market remains sensitive to macroeconomic factors, including interest rate expectations and geopolitical developments, which could introduce volatility.
A break above $2,736.52 would confirm bullish momentum, targeting $2,752.21 in the short term. Conversely, a drop below the $2,695 entry level may trigger a retest of key support areas.
Traders should closely watch for a breakout above resistance levels, while maintaining caution around the $2,676.58 support, as a breach could signal a shift in sentiment.
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