Gold prices (XAU/USD) fell back below the $2,700 mark during the Asian session on Friday, reversing a portion of the previous day’s recovery from a three-week low at the 50-day Simple Moving Average (SMA). The drop comes as the US Dollar (USD) experiences some dip-buying, supported by expectations that economic policies under President-elect Donald Trump could boost growth and inflation. This, coupled with a positive risk environment, weighs on gold, a traditional safe-haven asset.
The decline in gold is also tied to the unwinding of the so-called “Trump trade,” with a lack of hawkish signals from the Federal Reserve (Fed) contributing to a fall in US Treasury bond yields. The drop in yields has slowed the momentum for USD bulls, providing some tailwind for the non-yielding gold. As traders await the release of the Preliminary Michigan Consumer Sentiment Index and Inflation Expectations, gold remains on track to register losses for the second consecutive week.
Gold’s Price Pressured by Mixed Economic Signals
On Thursday, traders closed profitable positions in the so-called “Trump trades,” which led to a USD pullback from a four-month high and allowed gold to recover temporarily. However, the decline in the USD resumed after the Federal Reserve reduced its benchmark overnight borrowing rate by 25 basis points to a range of 4.50%-4.75%. In the Fed’s policy statement, officials emphasized supporting employment as a priority, alongside efforts to combat inflation.
Fed Chair Jerome Powell also avoided signaling a potential pause in rate cuts, despite persistent inflation. The market has priced in a 75% chance that the Fed will implement another rate cut in December, contributing to lower US Treasury yields. Trump’s victory in the US presidential election fueled speculation about increased deficits and inflation, which could limit the Fed’s ability to cut rates further.
Meanwhile, optimism over potential additional stimulus measures from China following a meeting of the Standing Committee of the National People’s Congress adds to the positive market sentiment, further pressuring gold.
Technical Outlook: Gold Faces Resistance at $2,718
From a technical perspective, gold’s recovery is encountering resistance at the 50% Fibonacci retracement level of its recent slide from the all-time high. This level is near the $2,718 region. If gold manages to break above this barrier, it could target the $2,734 level, marked by the 61.8% Fibonacci retracement. Further buying momentum could push the price beyond the $2,750 mark, with the next significant resistance zone seen between $2,758 and $2,790—the record high from October 31.
On the downside, the immediate support for gold is seen at the $2,672 level, with further support at $2,660 and the $2,643 region, which coincides with the 50-day SMA. A decisive break below this level could trigger additional selling, sending gold toward the October swing low around $2,605-2,602.
Market Sentiment and Future Outlook
The broader market sentiment, alongside economic data, will continue to drive gold’s price movement in the coming days. While gold is facing pressure from a stronger USD and risk-on sentiment, any shifts in US or global economic policies, such as further Fed rate cuts or stimulus announcements from China, could provide a catalyst for gold’s recovery. However, until there is a clear breakout from key technical levels, the precious metal is likely to remain range-bound.
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