Gold prices rise as the dollar plummets

Gold prices rose from $2.700 to $2,710 per ounce on Monday. If gold prices rise, they may encounter resistance at $2,700 per ounce, while if gold prices decline, support may be encountered near $2,656 per ounce. 

Gold prices are driven by opposing forces. The dollar’s weakness drove gold prices up on Monday. Haven demand dropped, however, after Trump failed to announce tariffs on his first day in office. In addition, the Fed’s recent hawkish shift is putting pressure on gold prices. 

Donald Trump’s Presidential inauguration at the US capitol attracted market attention on Monday. Trump was sworn in as the 47th president of the United States with the whole world anxiously expecting his inaugural address to the US nation. 

Safe-haven assets were under pressure on Monday, as the newly elected US President refrained from immediately announcing trade tariffs. Concerns that global inflation will rise, boosted demand for safe-haven assets in the previous weeks, propping up gold prices. 

Trump was widely expected to impose new trade tariffs immediately after taking office. Trump, however, refrained from issuing tariffs on his first day in office, raising speculation that the tariffs will be more moderate than originally speculated. The absence of a tariff plan gave rise to a risk-on sentiment on Monday putting pressure on gold prices. 

US inflation data last week came in lower than anticipated, indicating that disinflation in the US is progressing, which may affect the Fed’s rate outlook. Headline inflation rose by 2.9% year-on-year in December from 2.7% in November. Monthly inflation rose by 0.4% in December against 0.3% in November. Core CPI, however, which excludes food and energy, rose by just 0.2% in December following a 0.3% rise in November. Core CPI rose 3.2% year-on-year in December, below estimates for a 3.3% increase and November’s 3.3% gain. 

Gold prices have been typically directed by the dollar’s movement, as the competing gold loses appeal as an investment when the dollar rises. The dollar dipped on Monday, and the dollar index dropped from 109.2 to 108.1. US treasury yields remained the same, with the US 10-year bond yielding 4.63%, as Monday was a Bank holiday in the US in observance of Martin Luther King Day.  

Gold prices are under pressure by decreased Fed rate cut expectations. The US Federal Reserve cut interest rates by 25 basis points at its latest meeting to a target range of 4.25% to 4.50%. Fed Chair Jerome Powell delivered a hawkish speech after the meeting, emphasizing the need to be cautious about further rate cuts. Powell stated that the Fed’s approach will remain data-driven and hinted that the pace of future rate cuts will be slower.

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Written by:
Myrsini Giannouli

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