Gold appears set to close the week with a 0.80% increase, despite a drop on Friday. The decline in U.S. retail sales has weakened the U.S. Dollar and pushed down Treasury yields, prompting investors to anticipate more than one interest rate cut by the Federal Reserve. This scenario has enhanced bullion’s appeal in the long run.
On Friday, the price of gold dipped below $2,900. However, it is poised to finish the week strongly, up over 0.80%, as traders lock in profits with the weekend approaching. Although U.S. economic data was somewhat mixed, the dip in the Greenback to yearly lows, coupled with a fall in U.S. Treasury yields, has benefited Gold. Trading at $2,883, metals have seen a daily decline of 1.48%.
Retail sales in the U.S. experienced a substantial dip in January, putting pressure on the already struggling Greenback. Meanwhile, the demand for gold received a boost as traders adjusted their positions amidst favorable conditions usually associated with rising prices.
Following the economic data, the market is now factoring in more than one rate reduction by the Federal Reserve, leading to a six-basis-point drop in the U.S. 10-year Treasury note yield, now at 4.472%.
Other reports showed that industrial production had a positive turn in January, showing improvement after a lackluster December.
Daily Market Insights: Gold Prices Affected by Falling U.S. Yields and a Weaker Dollar
The yield on the U.S. 10-year Treasury bond fell five basis points to 4.48%. Real yields, known for moving inversely with gold prices, dipped four basis points to 2.041%, further supporting XAU/USD. January saw U.S. retail sales contract by 0.9% month-on-month, falling short of the predicted 0.1% decline, despite a positive revision for December’s figures to a 0.7% increase. Industrial production grew by 0.5% in January, a slowdown from December’s 1% but still above the expected 0.3% rise. In 2024, over 1,000 tons of gold were purchased by central banks for the third year running, as per the World Gold Council. Central bank gold acquisitions surged 54% year-over-year to 333 tons following Trump’s election win. Futures in the money market are also pricing in 38.5 basis points of Fed rate cuts by 2025.
Technical Outlook for XAU/USD: Gold Prices Pull Back After Hitting New Highs
The upward trend for gold appears intact despite its recent retreat, hitting a two-day low of $2,878. The Relative Strength Index dropped out of the overbought range it’s occupied for most of February. The current decline in XAU/USD may stabilize if buyers protect the daily low of $2,864 set on February 12. This level coincides with the first major support at the psychological barrier of $2,850. If this is breached, the next supports would be at the October 31 high of $2,790 and January 27’s swing low of $2,730.
Alternatively, if buying pushes gold prices beyond $2,900, the next hurdle is the previous all-time high of $2,942. Overcoming this could open the door to $2,950, with $3,000 serving as a longer-term target.
Gold FAQs
Gold has been a significant asset throughout history, frequently used as both a value store and an exchange medium. Beyond its aesthetic appeal and jewelry uses, it’s considered a reliable investment during economic turbulence. It also serves as a hedge against inflation and depreciating currencies, as it doesn’t depend on any specific issuer or government.
Central banks are the largest holders of gold. To bolster their currencies, especially in unstable times, central banks often diversify and add gold to their reserves, enhancing both economic and currency stability. In 2022, central banks added 1,136 tons of gold, valued at approximately $70 billion, marking the largest annual purchase since records began. Nations like China, India, and Turkey have been rapidly increasing their gold reserves.
Gold usually moves inversely to both the U.S. Dollar and U.S. Treasuries. As the Dollar weakens, gold prices typically rise, allowing investors and central banks to diversify during challenging periods. There’s also an inverse relationship with riskier assets; stock market rallies often weaken gold prices, while market downturns tend to boost them.
Gold’s market moves are influenced by several factors, including geopolitical events and economic fears that elevate its status as a safe haven. It tends to gain ground when interest rates are low since it doesn’t yield returns itself. Higher interest generally puts pressure on gold, which is priced in dollars (XAU/USD). A strong Dollar can suppress gold prices, whereas a weaker Dollar might push them higher.
