Gold prices supported by weaker dollar

Gold prices remained steady on Thursday, oscillating around the $2.750 per ounce level. If gold prices rise, they may encounter resistance at $2,790 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 this week. In addition, uncertainty over Trump’s future policies and trade tariffs promotes a risk aversion sentiment, boosting safe-haven assets, such as gold. The Fed’s recent hawkish shift, however, is putting pressure on gold prices. 

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 edged lower on Thursday and the index dropped from 108.2 to 108.1. US treasury yields increased, with the US 10-year bond yield rising from 4.61% to 4.64%.     

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. 

Gold prices are gaining strength on market concerns over Trump’s future policies and trade tariffs. Trump has already announced a plan to impose 25% tariffs on imports from Canada and Mexico starting February 1 and he has hinted that his administration is considering universal tariffs on all imports to the US. Rumors of a potential 10% duty on imports from China to the US ignited concerns that other nations may face trade tariffs as well.

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 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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