Gold prices retreated during the North American trading session as traders flocked to the US dollar, seeking safety amid rising US Treasury bond yields. The XAU/USD pair stood at $2,657, down 1.20%, after struggling to break through the $2,700 mark.
The decline in gold prices coincided with a rise in US Treasury bond yields, which hit their highest level since November 2023. The movement was driven by market participants turning to the Greenback, with the US dollar strengthening in response to the uptick in yields. This shift came despite a relatively quiet economic calendar on Monday, leaving investors to focus on December’s US Nonfarm Payrolls report.
While the labor market data exceeded expectations, showing an increase of 256,000 jobs—well above the forecasted 160,000—attention is now turning to inflation. On Wednesday, the December Consumer Price Index (CPI) will be released, with expectations for a slight increase in annual inflation to 2.8%, up from 2.7% in November. The Core CPI, which excludes volatile items, is projected to remain steady at 3.3% year-over-year, in line with the previous three-month average.
The inflation figures will be crucial in shaping market expectations for future Federal Reserve actions. Current money market futures suggest that investors are anticipating a modest 25 basis point reduction in rates, bringing the federal funds rate to 4.00%, down from the current range of 4.25% to 4.50%.
In the bond market, US Treasury yields continue to inch higher, while the dollar remains firmly in the green after briefly surpassing the 110.00 level. However, the Greenback has since retraced slightly, still maintaining its gains.
Gold prices also faced downward pressure from reports of a potential ceasefire agreement in Gaza. Such geopolitical developments tend to weigh on safe-haven assets like gold.
Looking ahead, financial markets are preparing for the inauguration of US President-elect Donald Trump, who will take office in just seven days. Investors are speculating about his first executive actions, with some predicting that he will impose tariffs on Mexico and Canada, in line with his previous statements on trade.
In the coming week, key US data releases include producer and consumer inflation figures, as well as Retail Sales and jobless claims for the week ending January 11.
Gold Faces Strong Headwinds Amid Rising US Dollar and Treasury Yields
Gold prices continue to struggle against a backdrop of rising US Treasury yields and a strengthening US dollar. The US Dollar Index (DXY) surged to 110.17 before trimming some of its gains, settling at 109.85, up 0.20%. Meanwhile, the US 10-year Treasury bond yield climbed to 4.767%, an increase of seven and a half basis points.
The Federal Reserve’s stance on easing also appears to be shifting, with expectations for a 30 basis point reduction in the Fed funds rate in the near future. Despite this, market sentiment continues to favor the US dollar, putting further pressure on gold prices.
XAU/USD Technical Outlook: Support and Resistance Levels to Watch
Gold’s uptrend encountered resistance on Monday, as a bearish engulfing pattern emerged on the daily chart, signaling a potential shift in momentum. The Relative Strength Index (RSI), while still in bullish territory, has begun to move toward neutral, suggesting that further downside could be on the horizon.
If XAU/USD drops below the key support level at $2,650, the next significant support would be the 50-day Simple Moving Average (SMA) at $2,643, followed by the 100-day SMA at $2,633. On the upside, a rebound above $2,700 could lead to resistance at the December 12 high of $2,726 and the all-time high (ATH) at $2,790.
As the market digests inflation data and broader economic developments, gold’s price movement will continue to be influenced by the interplay between US economic indicators, Federal Reserve policy, and investor sentiment.
Related topic:
Do Gold Futures Trade on Weekends?
