Gold prices have found themselves under pressure on Tuesday, unable to maintain an intraday recovery from the $2,600 mark as U.S. Treasury bond yields continue to rise. Despite some initial support driven by U.S. President-elect Donald Trump’s tariff threats, the precious metal’s recovery faltered due to a strengthening U.S. dollar and a more cautious outlook on Federal Reserve monetary policy.
Tariff Threat Boosts Safe-Haven Demand, but Recovery Lacks Momentum
Gold prices (XAU/USD) had briefly recovered from a one-week low near $2,600 earlier in the day, buoyed by safe-haven demand as President-elect Trump’s proposed tariffs on imports from Canada, Mexico, and China raised geopolitical concerns. This move was seen as part of a broader effort by Trump to combat illegal immigration and drug trafficking. Investors flocked to gold as a hedge against potential market instability, but the rally lacked follow-through.
Despite these geopolitical factors, gold’s attempted recovery remained tepid amid broader expectations of a less dovish Federal Reserve. The market is increasingly pricing in the view that Trump’s expansionary economic policies could reignite inflationary pressures. This, in turn, is expected to lead the Fed to gradually reduce its pace of interest rate cuts, thereby limiting the appeal of non-yielding assets like gold.
Rising U.S. Treasury Yields Support Dollar, Dampening Gold’s Appeal
The U.S. Treasury bond market has been a key factor driving gold’s decline. As inflation expectations rise, bond yields have surged, strengthening the U.S. dollar. A higher dollar reduces the appeal of gold, which becomes more expensive for foreign buyers, while the increasing yields make bonds a more attractive investment alternative.
Additionally, optimism surrounding Scott Bessent’s nomination as U.S. Treasury Secretary and the possibility of a ceasefire between Israel and Hezbollah have also capped gold’s recovery. These developments have contributed to an overall positive sentiment in the market, undermining the demand for the safe-haven precious metal.
Technical Analysis: Gold Faces Resistance at $2,650
From a technical perspective, gold’s recent bounce from the $2,600 region, which corresponds to the 61.8% Fibonacci retracement level of its recent recovery, faces significant resistance. This resistance zone is found near the $2,650 level, which aligns with both the 100-period Simple Moving Average (SMA) on the 4-hour chart and the 38.2% Fibonacci retracement level.
The $2,650 area is crucial for gold’s short-term price action, as it serves as a key pivot point. A sustained break above this level could trigger a short-covering rally, potentially pushing the price towards the $2,700 mark, with the next significant resistance zone lying around $2,721 to $2,722. However, without additional buying momentum, gold is likely to face a more challenging path upward.
Potential Downside Risks for Gold
On the downside, the $2,600 level is likely to continue acting as a crucial support point. This zone corresponds to the 61.8% Fibonacci retracement level, and a break below it would open the door for further declines. The next key support level is near the 100-day SMA, which is currently situated around $2,565. Should gold fall below this level, the downside risk increases significantly, with the potential to test the monthly swing low near $2,537 to $2,536.
A convincing break below the $2,536 area would mark a major shift in market sentiment, signaling a deeper retracement of gold’s recent gains. Such a move could set the stage for a continuation of the sharp downward slide from the $2,800 level, which marked gold’s all-time peak in October.
The Broader Market Context and Gold’s Outlook
Gold’s current struggle to maintain its recovery is indicative of a broader shift in market dynamics. Rising U.S. Treasury yields, a stronger U.S. dollar, and expectations for a less aggressive Federal Reserve are all weighing on gold’s prospects. While safe-haven demand remains a key driver, particularly amid geopolitical risks and inflation concerns, the increasing attractiveness of U.S. bonds and a stronger dollar are offsetting this demand.
Looking ahead, investors will closely monitor the Federal Reserve’s policy decisions and any potential shifts in inflation expectations, as these will play a critical role in determining gold’s price trajectory. If inflationary pressures continue to rise, the Fed’s response could further impact gold’s performance. However, if gold fails to regain its footing above key technical levels, further downside risk remains, especially if the $2,600 support level is breached.
Conclusion: Gold’s Road Ahead Is Paved with Uncertainty
As of now, gold prices remain caught between competing forces. On one hand, there are persistent inflationary concerns and geopolitical risks that continue to drive some demand for the metal. On the other hand, rising U.S. Treasury yields and a stronger dollar are reducing the metal’s appeal as an investment.
The next few days and weeks will be crucial for gold, as key technical levels are tested and the broader economic landscape evolves. Investors will need to stay vigilant, as any shift in U.S. monetary policy or inflation expectations could dramatically impact the price of gold. The struggle between the forces of inflation and a strong dollar is far from over, and gold’s path forward remains uncertain as these macroeconomic factors continue to play out.
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