Gold faced a tumultuous week last week, as various economic factors weighed heavily on the precious metal’s performance, resulting in its sharpest weekly decline in more than five months. The main drivers behind these moves were the surging US dollar, rising Treasury yields, and cautious signals from the Federal Reserve, all of which contributed to a pessimistic attitude among traders.
Gold prices fell on Friday, and stayed below $2,700 as markets reacted to the implications of Donald Trump’s presidency and the Fed’s latest interest rate decision.
The Fed cut rates by 25 bps as expected on Kamis, while signaling a cautious stance towards any further rate cuts. However, markets are pricing in higher interest rates from the Fed, due to the policies of the new US president.
Demand for gold as a hedge against inflation may remain strong in the near term, as the possibility of Republicans taking control of the House and Senate, which would make it easier for the Trump administration to push through policies of lower taxes, higher tariffs, and looser regulations, could revive inflation. In addition, ongoing hostilities in the Middle East continue to increase demand for safe haven assets for precious metals.
Meanwhile, the World Gold Council reported that global physically-backed gold exchange-traded funds saw inflows for the sixth consecutive month in October. In addition, gold prices may get an extra boost from China’s new stimulus aimed at increasing the debt ceiling of local governments to 35.52 trillion yuan, allowing them to issue six trillion yuan in additional special bonds over three years to swap out hidden debt.
From a technical perspective, Gold has rallied impressively throughout the year, but no uptrend is without setbacks. XAUUSD recently dropped below its low of $2,643 along with the bottom line of the August channel. This suggests there is a potential pullback in gold from the ATH, towards the next set of lows.
On the downside, a drop below $2,643 could test the $2,603 important support or $2,600 round-figure. A move below these levels would confirm the start of a short-term downtrend. For now, the price is indeed stuck at the $2,708 neckline. A move above this level could test the resistance on the right shoulder at $2,750 before chasing the ATH. The AO indicator is in the selling area with the price moving below the middle BB, an indication of the sellers’ dominance over the recent trade.
The upcoming US consumer price data, due on Wednesday, is likely to shape Fed expectations ahead of its December meeting. While the dollar remains strong, profit-taking and policy uncertainty suggest potential near-term volatility as markets await clearer signals from the Fed and the Trump administration’s policy framework. Therefore, gold price volatility next week could still occur.
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Ady Phangestu – Market Analyst
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