Gold price drops to nearly two-month low, seems vulnerable near $2,560 area

• Gold price remains under heavy selling pressure amid the continuation of the Trump trade.
• The optimism over stronger US economic growth lifts the USD to a fresh YTD top on Thursday.
• Rising US bond yields also contribute to driving flows away from the non-yielding yellow metal.

Gold price (XAU/USD) attracts sellers for the fifth successive day and drops to its lowest level since September 19, around the $2,559-2,558 region during the Asian session on Thursday. The US Dollar (USD) prolongs its post-election rally and climbs to a fresh year-to-date (YTD) peak amid hopes that US President-elect Donald Trump's policies will spur growth. This, in turn, is seen as a key factor that continues to weigh heavily on the USD-denominated commodity. 

Meanwhile, investors believe that expected protectionist tariffs from the new Trump administration could boost inflation and force the Federal Reserve (Fed) to pause its easing cycle. Moreover, US data released on Wednesday pointed to slower progress toward bringing inflation down and could result in fewer rate cuts next year. This remains supportive of elevated US Treasury bond yields and also contributes to driving flows away from the non-yielding Gold price.

Apart from this, a generally positive tone across the global equity markets exerts additional pressure on the safe-haven precious metal and supports prospects for a further downward move. Traders now look forward to the release of the US Producer Price Index (PPI) for short-term opportunities. The focus, however, will remain on Fed Chair Jerome Powell's speech, which could offer cues about the future rate-cut path and provide a fresh impetus to the Gold price. 

Gold price continues losing ground as the Trump trade boost USD and US bond yields

• The US Bureau of Labor Statistics reported on Wednesday that the headline US Consumer Price Index (CPI) rose 0.2% in October and by 2.6% over the last twelve months.
• The core gauge – which excludes the more volatile food and energy categories—increased by 0.3% last month and by 3.3% as compared to the same time period last year. 
• The data reaffirmed market bets that the US Federal Reserve would deliver a third interest rate cut in December against the backdrop of a softening labor market.
• According to CME Group's FedWatch Tool, the probability of another 25-basis-points rate cut at the next FOMC meeting shot to over 80% from less than 60% on Tuesday. 
• Commenting on the report, Dallas President Lorie Logan said that the central bank has made a great deal of progress bringing down inflation, but should proceed cautiously.
• St. Louis Fed President Alberto Musalem noted that the risk of inflation moving higher has risen and that sticky inflation makes it difficult for the central bank to continue to ease rates. 
• Kansas Fed President Jeffrey Schmid made a rare appearance and said it remains to be seen how much more the US central bank will cut rates, and where they may settle.
• US President-elect Donald Trump's pledges of tax cuts and increased tariffs on imports could accelerate inflation, limiting the scope for the Fed to cut rates going forward.
• The Trump trade optimism keeps the yield on the 10-year US government bond elevated near a multi-month top and lifts the US Dollar to the highest level since November 2023.
• Thursday's US economic docket features the release of the usual Weekly Initial Jobless Claims and the Producer Price Index, ahead of Fed Chair Jerome Powell's appearance. 

Gold price now seems vulnerable, could test the $2,542-2,538 support confluence 

From a technical perspective, the overnight breakdown below the $2,600 mark, which coincided with the 38.2% Fibonacci retracement level of the June-October rally, was seen as a fresh trigger for bearish traders. This, along with negative oscillators on the daily chart, suggests that the path of least resistance for the Gold price remains to the downside and supports prospects for a fall towards the $2,542-2,538 confluence support. The said area comprises the 100-day Simple Moving Average (SMA) and the 50% Fibo. level, which if broken will set the stage for an extension of the recent sharp pullback from the all-time peak and expose the $2,500 psychological mark.

On the flip side, attempted recovery moves might now confront resistance near the Asian session high, around the $2,580 area, ahead of the $2,600 round figure. A sustained strength beyond the latter might prompt a short-covering rally towards the $2,630-2,632 static barrier, which if cleared should pave the way for a move towards the next relevant hurdle near the $2,660 region.

Gold FAQs

Why do people invest in Gold?

Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.

Who buys the most Gold?

Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.

How is Gold correlated with other assets?

Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.

What does the price of Gold depend on?

The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.