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Gold Prices Continue Downtrend Amidst Strong USD and Trump Trade Optimism
Summary:
Gold prices (XAU/USD) continue to fall for the second consecutive day as the U.S. Dollar (USD) remains bolstered by optimism around President-elect Donald Trump's proposed economic policies and anticipation of further U.S. rate hikes.
CLOSED
2665.00
Entry Price
2400.00
TP
2715.00
SL
2559.46 -13.23 -0.51%
490.8
Pips
Profit
2400.00
TP
2615.92
Exit Price
2665.00
Entry Price
2715.00
SL
Gold prices (XAU/USD) slipped lower for the second consecutive day on Monday, as the U.S. Dollar's strength, driven by market optimism surrounding President-elect Donald Trump’s economic policies, continued to exert downward pressure on the precious metal. After closing the prior week with significant losses, gold is struggling to recover its footing amid a confluence of factors that favor the dollar over safe-haven assets like gold. These factors include expectations for less aggressive Federal Reserve rate cuts, elevated U.S. bond yields, and strong investor interest in U.S. equities.
The Trump administration’s expected economic approach, often dubbed “Trump trade optimism,” has buoyed the dollar, driving it close to a four-month high. Markets are betting on policies that favor fiscal stimulus, infrastructure spending, and trade protectionism, all of which tend to boost U.S. economic growth and inflation expectations. As a result, the dollar has become increasingly attractive to investors, undermining the demand for gold, which traditionally performs well when the dollar weakens.
Gold’s sensitivity to rising bond yields has further compounded its downward trajectory. With bond yields elevated in response to anticipated inflation, investors are showing preference for yield-bearing assets over gold, which does not offer a yield. Notably, Trump’s campaign pledge to impose a 10% tariff on all U.S. imports is expected to fuel inflationary pressures, which would restrict the Federal Reserve’s ability to cut rates aggressively—a situation that further supports high bond yields and reduces the allure of non-yielding assets like gold.
The Federal Reserve’s recent 25 basis point rate cut, combined with forward guidance indicating a cautious approach to further easing, also plays a pivotal role in gold’s outlook. While the market has priced in a 65% probability of another cut in December, the Fed has signaled it will only proceed with additional rate reductions if inflation remains persistently below its 2% target. This measured approach has fortified investor confidence in the dollar, given that a robust U.S. economy could limit the scope of rate cuts. Minneapolis Fed President Neel Kashkari’s recent comments emphasized that the Fed seeks more evidence of inflation reaching 2% before adjusting rates further, underlining a “wait-and-see” policy that strengthens the dollar at gold’s expense.
Investors are approaching this week with caution as key economic data releases and Fed communications loom. Scheduled for release on Wednesday, the U.S. Consumer Price Index (CPI) is a critical inflation metric that could influence the Fed’s stance on rates. Subsequent data on the Producer Price Index (PPI) and retail sales, set for Thursday and Friday respectively, are also expected to provide insights into inflation trends and consumer spending, shaping investor expectations for future Fed actions.
Market participants are additionally focused on comments from several Federal Reserve officials, including Fed Chair Jerome Powell, who is slated to speak later in the week. These speeches are likely to offer further guidance on the rate-cut outlook and could spur volatility in both the dollar and gold. The potential for hawkish remarks, suggesting a more restrained approach to future rate cuts, could reinforce dollar strength and maintain the pressure on gold.
The broader context of Trump’s trade policies adds another layer to the narrative. By promoting protectionist measures, the Trump administration risks exacerbating global trade tensions, which could disrupt global markets. If implemented, these policies could lead to restrictive trade practices worldwide, negatively impacting economic growth but potentially lending some support to gold as a safe-haven asset. However, any potential gold rally may be short-lived, as robust dollar sentiment would likely counterbalance such support.
Technical Analysis
From a technical standpoint, gold's decline appears set to continue, with bears maintaining control over the market. On Monday, gold successfully tested the $2,675.00 level, closing below it during the first four-hour session of the day—a bearish sign that suggests further downside potential. This move positions gold for a potential test of the $2,640.00 mark as the next support level ,then potentially test $2,400.
Technical indicators, including the 50-day Exponential Moving Average (EMA), apply sustained negative pressure on gold, bolstering bearish sentiment. This trend is likely to persist unless gold breaks above the $2,696.85 threshold, which would signal a potential shift back towards a bullish outlook and suggest that the current downward correction may be over. However, in the absence of a decisive break above this resistance level, gold remains poised for continued weakness in the coming sessions.
The anticipated trading range for today places support at $2,650.00 and resistance at $2,685.00, with the prevailing forecast biased towards a bearish trend.
TRADE RECOMMENDATION
SELL GOLD
ENTRY PRICE: 2665
STOP LOSS: 2715
TAKE PROFIT: 2400
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Bollinger Bands show that the current price is hovering near the middle band of the indicator at 0.62852, signaling that the market is in a consolidation phase after the previous sharp decline. The current Bollinger Bands are quite narrow, indicating low volatility and a high possibility of a breakout from the current price range if the trading volume increases in the coming hours.
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