The global market witnessed a downturn in gold prices as the precious metal struggled near two-week lows, trading below $2,900 during Friday’s Asian session. This decline marks the second consecutive day that gold prices have attracted sellers, driven by a robust US Dollar and diminishing US Treasury bond yields. As investors anticipate the release of the US Personal Consumption Expenditure (PCE) Price Index, which could provide crucial insights into the Federal Reserve's monetary policy, gold remains under pressure.
On Friday, gold prices drifted lower for the second straight day, continuing a negative trend observed in three of the past four sessions. This decline saw prices drop to just above the $2,860 mark, marking a fresh two-week low. The backdrop of a broadly stronger US Dollar has been pivotal in this downward trajectory. The greenback continued its recovery move for the third consecutive day, bolstered by expectations that the Federal Reserve would maintain its hawkish stance amid persistent inflationary pressures.
The US Dollar's resilience stems from bets on the Fed's unwavering commitment to controlling inflation. This has led to a global flight to safety, impacting US Treasury bond yields. Despite this, declining yields have done little to support gold prices, which traditionally share an inverse relationship with both the US Dollar and US Treasuries. When these assets strengthen, gold typically declines, as observed in recent trading sessions.
Oscillators on the daily chart have started showing negative traction, suggesting potential for an extension of the corrective pullback from gold's all-time peak. Traders are cautiously awaiting the release of the US PCE Price Index data for cues on the Fed's rate-cut path before making fresh directional bets on gold prices. This economic data could provide significant momentum for the XAU/USD pair, influencing market sentiment and future trading strategies.
In addition to domestic factors, international dynamics are playing a role in shaping gold prices. Central banks from emerging economies such as China, India, and Turkey have been actively increasing their gold reserves. This trend reflects a strategic move to diversify assets amid global economic uncertainties. However, this accumulation has not been enough to counteract the current negative sentiment surrounding gold.
The US Bureau of Economic Analysis recently published its second reading of the US Gross Domestic Product (GDP), confirming a 2.3% annualized growth rate during the final quarter of 2024. Additionally, the GDP Price Index saw an upward revision to 2.4% from an initial estimate of 2.2%. These figures underscore the resilience of the US economy and reinforce expectations of sustained monetary tightening by the Federal Reserve.
Gold's inverse correlation with the US Dollar and US Treasuries is well-documented. In times of a depreciating Dollar, gold tends to rise as investors and central banks seek to diversify their holdings. However, the current scenario presents a different picture as the stronger Dollar continues to weigh heavily on gold prices.
Despite these challenges, there remains potential for a rebound in gold prices should market conditions shift. A sustained strength beyond certain technical levels could propel prices towards a $2,915 horizontal support breakpoint. Such a move would require significant changes in market sentiment or unexpected economic developments that could alter current trajectories.