Gold prices remain under significant pressure despite a slight dip in the US Dollar as the market gears up for the Federal Reserve’s upcoming policy decision. Trading around $2,650 per troy ounce on Thursday, gold (XAU/USD) has extended its losses, marking the second consecutive session in the red as safe-haven demand weakens and the Dollar strengthens. This decline comes as the broader market is influenced by “Trump trades,” a trend catalyzed by optimism following former President Donald Trump’s re-election.
Dollar Surge and Treasury Yields Squeeze Gold
The recent rise in the US Dollar and Treasury yields has put substantial pressure on gold prices. Traditionally, as a non-yielding asset, gold faces a tough market when yields on interest-bearing assets, such as US Treasury bonds, are high. Wednesday saw the 2-year and 10-year US Treasury yields reach 4.31% and 4.47%, respectively, their highest levels since July. This surge in yields draws investors away from gold, reducing its appeal as a safe-haven asset.
Despite a modest pullback in the US Dollar, which had recently reached a four-month high, the currency remains robust amid renewed optimism in the markets. The so-called “Trump trades” reflect the market’s positive response to Trump’s victory, with investors increasingly betting on a strong Dollar in light of anticipated fiscal policies and tariff adjustments under his administration. These factors are weighing heavily on gold, as investors seek assets that offer immediate returns.
Fed’s Rate Decision Looms Large
The Fed’s policy decision, due later on Thursday, is a key event that could affect the trajectory of gold prices. Markets currently anticipate a 25 basis point rate cut, a move that could potentially support gold by lowering the opportunity cost of holding non-interest-bearing assets. The CME FedWatch Tool reflects a 98.1% likelihood of this cut, signaling that the markets are largely aligned in their expectations.
Gold might see some reprieve if the Fed opts for a more dovish stance, as this could apply downward pressure on the US Dollar and bond yields, making gold a more attractive investment. However, should the Fed take a cautious approach to rate cuts given the economic growth optimism under Trump’s policies, the downward pressure on gold could persist in the short term.
Also read : Gold Drops 0.5% As Trump Nears Victory- US Dollar, Bitcoin, And Stocks Surge
Technical Analysis: Key Levels to Watch
From a technical perspective, gold’s bearish bias remains intact. Currently trading below both the nine- and 14-day Exponential Moving Averages (EMAs), the XAU/USD shows signs of further weakness. Additionally, the Relative Strength Index (RSI) on the 14-day chart hovers below the midpoint of 50, suggesting limited momentum for any immediate recovery.
On the downside, key support for gold prices lies around the three-week low of $2,603.53. A sustained break below this level could open the door to further declines, with the psychological support level at $2,500 becoming the next significant threshold. Conversely, resistance is seen at $2,700, followed by the nine-day EMA at $2,711.40. A successful push beyond these levels might drive gold prices to retest the all-time high of $2,790.11, recorded on October 31.
