Gold approaches 100-day SMA/50% Fibo. confluence amid sustained USD buying

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) touches its lowest level since September 19, around $2,550 area during the early part of the European session on Thursday. The US Dollar (USD) buying remains unabated in the wake of optimism over the expected expansionary policies by US President-elect Donald Trump. This, in turn, is seen as a key factor dragging the commodity lower for the fifth successive day.

Meanwhile, Trump's plans to hike tariffs on imports could accelerate inflation and force the Federal Reserve (Fed) to pause its easing cycle. Moreover, the US inflation figures released on Wednesday pointed to slower progress toward bringing prices down. This remains supportive of elevated US Treasury bond yields and contributes to driving flows away from the non-yielding Gold price.

Gold price bears maintain their dominant position amid broad-based USD strength and rising 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 could pause for breather near the $2,542-2,538 confluence support, remains vulnerable

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.

Fed FAQs

What does the Federal Reserve do, how does it impact the US Dollar?

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

How often does the Fed hold monetary policy meetings?

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

What is Quantitative Easing (QE) and how does it impact USD?

In extreme situations, the Federal Reserve may resort to a policy named 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 during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

What is Quantitative Tightening (QT) and how does it impact the US Dollar?

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

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