Gold dips amid firm US Dollar as Trump’s protectionist policies loom

• Gold experiences worst week in five months; DXY climbs to 105.57 on Trump trade fears.
• Treasury market closure limits safe-haven flows; investors brace for Fed rate outlook in December.
• Fed officials’ remarks, key US inflation data and Retail Sales to further impact Gold’s path.

Gold plummets more than 2.50% on Monday as the Greenback hits a four-month high. Expectations that Donald Trump’s second presidential term could spark an escalation on the trade war front is keeping the US Dollar on the front foot. The XAU/USD trades at $2,611 after reaching a daily high of $2,686.

The non-yielding metal printed its worst week in over five months, following the results of the US presidential election. The US Dollar Index (DXY), which tracks the performance of the buck against six peers, climbed 0.60% to 105.57.

The US Treasury market remains closed in observance of Veteran’s Day. In the meantime, US equity markets fluctuated despite reaching record highs.

Overnight news revealed that Blackrock and JPMorgan warned the US bond sell off is “far from over,” according to Bloomberg reports. “Trump’s fiscal plans may rekindle inflation and increase the budget deficit, while traders have pared bets for how deeply the Federal Reserve will cut interest rates,” was read on the report.

For the upcoming December meeting, the Federal Reserve (Fed) is expected to lower rates by 25 basis points, even though odds moved back from 80% a week ago to 65% chances.

Over the weekend, Minneapolis Fed President Neel Kashkari said, “We want to have confidence that inflation is going to go all the way back down to our 2% target.” He added that if growth and productivity remain strong, the Fed may not cut as much.

Rumors of Robert Lighthizer becoming the leader of the US trade office — a known supporter of Donald Trump’s tariffs — sparked fears among investors. Consequently, the golden metal edged lower on speculation that Fed Chair Jerome Powell would adopt a cautious approach regarding policy by reducing interest rate cuts next year, which would benefit the US Dollar.

Ahead this week, the US economic docket will influence Gold’s path. Traders will eye comments from Fed officials, along with key data releases on consumer and producer inflation and Retail Sales.

Gold price slumps as data boosts the Greenback

• Gold prices fell as US real yields, which inversely correlate against Bullion, had recovered and climbed two basis points to 1.978%.
• Last Thursday, the Fed cut interest rates, recognizing a robust economy, a cooling labor market, and a gradual disinflation trend. However, officials noted that inflation is "still somewhat elevated" as it nears the 2% target.
• Fed Chair Jerome Powell withheld specific guidance on future policy, leaving options open for upcoming meetings. He highlighted that the Fed can proceed gradually in reducing rates, given the economy’s strength. Powell also acknowledged that monetary policy remains restrictive, even after the rate cut, as the Fed aims to reach a neutral stance.
• Data from the Chicago Board of Trade, via the December fed funds rate futures contract, shows investors estimate 24 bps of Fed easing by the end of 2024.

XAU/USD Technical Outlook: Gold price tumbles with sellers eyeing $2,600

Gold price collapses to around $2,610, threatening to clear the latest intermediate support at $2,603, the October 10 low, which if cleared could pave the way for further downside. In that outcome, the next support would be $2,600, followed by the 100-day Simple Moving Average (SMA) at $2,534.

On the other hand, if Gold clears $2,700, buyers will eye the 20-day SMA at $2,718, ahead of $2,750, followed by the October 23 high at $2,758.

Momentum has shifted bearishly as the Relative Strength Index (RSI) distanced itself from its neutral line, a sign that XAU/USD might extend its losses.

Gold FAQs

Why do people invest in Gold?

Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.

Who buys the most Gold?

Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.

How is Gold correlated with other assets?

Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.

What does the price of Gold depend on?

The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.

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