- Gold rebounds from technical support as the US Dollar peaks and then reverses.
- The precious metal faces challenges from expectations surrounding US interest rates and the impact of Trumponomics.
- Fed Chair Powell describes the US economy as being in “remarkably good” shape, boosting the USD and putting pressure on Gold.
Gold (XAU/USD) remains steady on Friday, trading in the $2,560s after a slight recovery from the two-month lows reached on the previous day.
The strength of the US Dollar continues to weigh on Gold, as the precious metal is primarily priced and traded in USD. Persistently high US inflation, strong labor market data, and optimistic remarks from Federal Reserve (Fed) Chairman Jerome Powell helped the US Dollar Index (DXY) reach a new year-to-date high on Thursday, putting additional pressure on Gold.
Gold Drops on Strong USD and Political Developments
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Gold extended its decline, breaking below a significant trendline and hitting new lows in the $2,530s on Thursday. This drop came after a combination of higher US factory-gate inflation data, lower US unemployment claims, and Powell's comments that the US economy is "remarkably well," reducing expectations for aggressive rate cuts by the Fed. These developments are negative for Gold, which tends to perform better when interest rates are lower due to its status as a non-interest-bearing asset.
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The release of US Retail Sales data on Friday could further influence Gold’s price. If the data exceeds expectations, it could push the US Dollar higher, exerting additional downside pressure on Gold.
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Gold was also impacted by political developments, with the Republicans gaining control of the US House of Representatives, alongside their existing control of the Senate and White House. This shift could make it easier for President-elect Donald Trump and his party to push through inflationary economic policies, which, while traditionally positive for Gold as an inflation hedge, might lead the Fed to keep interest rates elevated, which would be negative for Gold.
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Outflows from large hedge funds, who had ridden the Gold bull wave earlier this year, further contributed to the metal’s decline. These funds, using trend-following strategies, may be signaling doubts about the sustainability of Gold's uptrend. Additionally, Gold Exchange Traded Funds (ETFs) experienced outflows of around $809 million (12 tonnes) in early November, according to the World Gold Council, adding to the pressure.
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Despite these factors, elevated geopolitical risks continue to provide some support for Gold as a safe-haven asset. However, recent reports suggest tentative progress in US efforts to negotiate a ceasefire in Lebanon, which could ease some of the geopolitical tension.
Technical Analysis: Gold Finds Support at 100-Day SMA
Gold formed a bullish Hammer candlestick pattern on Thursday after reaching support at the 100-day Simple Moving Average (SMA). However, a confirmation from a green bullish candle on Friday is needed to signal a potential near-term reversal. Currently, the price is trading flat.
Despite the short-term bullish signal, the broader downtrend persists. A break below the $2,530 level (the August highs) could signal a continuation of the downward trend. The next downside target is around the $2,470s, followed by the $2,400 level, where the 200-day SMA is located.
On the long-term chart, Gold remains in an overall uptrend, which increases the likelihood of a reversal higher, aligning with its broader upcycle.
XAU/USD Daily Chart
