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Gold price hits fresh two-month low as the post-election USD rally remains uninterrupted

  • Gold price remains under heavy selling pressure amid the continuation of the Trump trade.
  • The optimism over stronger US economic growth lifts the USD to a fresh YTD top on Thursday.
  • Rising US bond yields also contribute to driving flows away from the non-yielding yellow metal.

Gold price (XAU/USD) drifts lower for the fifth consecutive day and drops to its lowest level since September 19, around the $2,554-2,553 region heading into the European session on Thursday. The commodity continues to be weighed down by an extension of the US Dollar's (USD) post-election rally to a fresh year-to-date, bolstered by optimism over the expected expansionary policies by the incoming Trump administration. 

Meanwhile, Trump's potentially inflationary tariffs might force the Federal Reserve (Fed) to pause its easing cycle. Moreover, the US Consumer Price Index (CPI) released on Wednesday pointed to a slower progress toward bringing inflation down and could result in fewer rate cuts next year. This remains supportive of elevated US Treasury bond yields and contributes to driving flows away from the non-yielding Gold price. 

Gold price continues to be pressured by relentless USD buying and elevated US bond yields

  • The US Bureau of Labor Statistics reported on Wednesday that the headline US Consumer Price Index (CPI) rose 0.2% in October and by 2.6% over the last twelve months.
  • The core gauge – which excludes the more volatile food and energy categories—increased by 0.3% last month and by 3.3% as compared to the same time period last year. 
  • The data reaffirmed market bets that the US Federal Reserve would deliver a third interest rate cut in December against the backdrop of a softening labor market.
  • According to CME Group's FedWatch Tool, the probability of another 25-basis-points rate cut at the next FOMC meeting shot to over 80% from less than 60% on Tuesday. 
  • Commenting on the report, Dallas President Lorie Logan said that the central bank has made a great deal of progress bringing down inflation, but should proceed cautiously.
  • St. Louis Fed President Alberto Musalem noted that the risk of inflation moving higher has risen and that sticky inflation makes it difficult for the central bank to continue to ease rates. 
  • Kansas Fed President Jeffrey Schmid made a rare appearance and said it remains to be seen how much more the US central bank will cut rates, and where they may settle.
  • US President-elect Donald Trump's pledges of tax cuts and increased tariffs on imports could accelerate inflation, limiting the scope for the Fed to cut rates going forward.
  • The Trump trade optimism keeps the yield on the 10-year US government bond elevated near a multi-month top and lifts the US Dollar to the highest level since November 2023.
  • Thursday's US economic docket features the release of the usual Weekly Initial Jobless Claims and the Producer Price Index, ahead of Fed Chair Jerome Powell's appearance. 

Gold price approaches $2,542-2,538 confluence, comprising 100-day SMA and 50% Fibo. 

From a technical perspective, the overnight breakdown below the $2,600 mark, which coincided with the 38.2% Fibonacci retracement level of the June-October rally, was seen as a fresh trigger for bearish traders. This, along with negative oscillators on the daily chart, suggests that the path of least resistance for the Gold price remains to the downside and supports prospects for a fall towards the $2,542-2,538 confluence support. The said area comprises the 100-day Simple Moving Average (SMA) and the 50% Fibo. level, which if broken will set the stage for an extension of the recent sharp pullback from the all-time peak and expose the $2,500 psychological mark.

On the flip side, attempted recovery moves might now confront resistance near the Asian session high, around the $2,580 area, ahead of the $2,600 round figure. A sustained strength beyond the latter might prompt a short-covering rally towards the $2,630-2,632 static barrier, which if cleared should pave the way for a move towards the next relevant hurdle near the $2,660 region.

US Dollar FAQs

The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.

The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.

In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.

Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.

 

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