The gold price trends recently fell from its all-time high of approximately $2,220 during early Thursday trading in America. This decline is attributed to a surge in both the US dollar and US Treasury yields.
Impact of the US Dollar and Treasury Yields
The US Dollar Index (DXY), which tracks the dollar’s performance against other major currencies, increased to 103.50. This rise followed a period of decline when the Federal Reserve (Fed) updated its economic forecasts. The Fed’s projections for GDP growth and the Core Personal Consumption Expenditure Price Index (PCE) for 2024 were higher than previously expected, strengthening the US dollar and suggesting a more robust economy.
Simultaneously, the yields on 10-year US Treasury bonds rose to 4.27%. This increase occurred because the Fed did not indicate a forthcoming reduction in interest rates.
Overall, the improved economic outlook for the US led to a stronger dollar and higher Treasury yields, contributing to the drop in gold prices.
Historical Context and Market Reactions
Gold price hit a peak earlier this year as speculation grew that the Fed might cut interest rates in June. This sentiment was bolstered by the Fed’s indication that some officials anticipated three rate cuts within the year. Comments from Fed Chair Jerome Powell also supported this outlook, with Powell suggesting that inflation, though high in February, was expected to decrease.
As expectations for rate cuts grew, gold became more attractive as it does not yield interest, prompting increased demand.
Recent Market Trends and Forecasts
Gold price trends fell sharply after reaching their peak at around $2,223, largely due to a stronger US dollar. Despite this, demand for gold remains robust. The Fed’s belief in improving inflation and their plan to reduce interest rates three times this year are key factors. The Core PCE Price Index is anticipated to be 2.6% in 2024, higher than previous forecasts.
However, forecasts for interest rates in 2025 and 2026 have increased, with expectations for lower unemployment and higher GDP growth in 2024.
Technical Analysis of Gold Prices
Gold prices have recently declined from their peak, falling below $2,180. Despite this, short-term demand for gold is strong, supported by a rising 20-day Exponential Moving Average (EMA).
The price faces resistance around $2,250, influenced by the Fibonacci extension level. A potential support level is found at the high price of $2,144.48 from December 4.
The 14-period Relative Strength Index (RSI) remains between 60.00 and 80.00, indicating potential for further price increases.
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