Gold lost more than 1% on Friday, the latest drop contributing to a weekly decline of over 3%. This decline came as the US dollar climbed to a ten-day high of 107.66, stirred by heightened concerns over US trade policies and economic data that hint at looming recessionary pressures. After hitting a daily high of $2,885, the XAU/USD rate dipped to $2,845.
President Donald Trump announced that a 25% tariff on goods from Mexico and Canada will be enforced next week, starting March 4. Meanwhile, the Federal Reserve’s preferred inflation indicator, the Core Personal Consumption Expenditures (PCE) Price Index, suggested that inflation is steadily moving towards the Fed’s 2% target.
Following the release of these figures, expectations for further easing of US monetary policy grew. Investors, relying on data from Prime Market Terminal, predicted that the Federal Reserve would reduce interest rates by 70 basis points this year, with the first cut anticipated in June.
Moreover, the Atlanta Fed’s GDPNow model revised its Q1 2025 GDP growth estimate, indicating a contraction from previous expectations of a 2.3% expansion to a negative 1.5%. This data spurred a three-basis-point drop in the yield of the 10-year US Treasury note, while the US dollar strengthened amidst recession concerns.
Some Federal Reserve officials added their voice to the conversation. Cleveland Fed’s Beth Hammack expressed that a rate hike seems unlikely, and noted that the effects of trade policies on monetary policy and the broader economy are uncertain.
In the latest market update, core PCE in the US increased by 0.3% from December on a monthly basis, matching predictions, though it showed a yearly increase of 2.6%, down from December’s 2.8% rise. The headline PCE recorded a yearly increase of 2.5%, as expected, while maintaining a monthly growth of 0.3%. Investors are also closely monitoring President Trump’s trade rhetoric, as he announced additional tariffs: 25% on Mexico and Canada, with a 10% tariff on China.
The yield on the US 10-year Treasury note stood at 4.229%, limiting gold’s price decline. Meanwhile, real yields on US 10-year Treasury Inflation-Protected Securities (TIPS) fell five basis points to 1.853%. In light of recent developments, Goldman Sachs adjusted their gold price forecast, predicting a price of $3,100 by the end of 2025.
Looking at the technical chart, gold prices have been marking consecutive bearish candles. This pattern suggests that traders are taking profits ahead of the weekend and settling their portfolios at month’s end. Following its drop below $2,900, XAU/USD extended its descent towards $2,832. However, should the price manage to close above $2,850, it could reignite optimism among buyers aiming for higher targets.
In such a case, the immediate resistance would be at $2,900, followed by the year-to-date high of $2,956. On the downside, the first support lies at $2,800, with the next levels around the October 31 peak at $2,790, and the 50-day Simple Moving Average (SMA) at $2,770.
Gold has historically been an essential asset, valued not just for its beauty but for its role as a safe-haven investment, often seen as a hedge during financial turmoil or against inflation. Central banks, keen to bolster their economies, have been significant purchasers of gold. In 2022, they added a record 1,136 tonnes, approximately valued at $70 billion, to their reserves—reportedly the largest annual addition ever recorded. Countries like China, India, and Turkey are notably increasing their gold holdings.
The price of gold often moves inversely with the US dollar and Treasury yields. When the dollar weakens, gold prices typically rise, providing a buffer for investors during unstable times. Conversely, when stock markets rally, gold prices might weaken as it moves against risk assets. Yet, a downturn in riskier markets will usually benefit the precious metal.
Numerous factors influence gold prices, including geopolitical instability and declining economic outlooks, which often cause its safe-haven appeal to rise. Since gold is a non-yielding asset, it tends to do well in low-interest-rate environments, although higher borrowing costs might suppress its price. Ultimately, much depends on the behavior of the US dollar, as a strong dollar can suppress gold prices, while a weaker dollar generally supports them.
