Gold price (XAU/USD) has declined below the $2,600 mark during the European session on Tuesday, influenced heavily by a strong US Dollar. This significant drop in gold price represents the first time it has dipped below $2,600 since September 20. Investors continue to move into what has been dubbed the “Trump trade,” pushing the USD to its highest level in four months and adding substantial downward pressure on gold, marking the third consecutive day of decline.
Impact of US Economic Policies on Gold Prices
US economic policies under President Donald Trump are also having a notable impact on gold prices. The administration’s expansionary policies aim to boost economic growth, which could further elevate inflation. If inflation rises, the Federal Reserve may have limited scope to ease its monetary policy. This expectation keeps US Treasury bond yields high, which draws investment away from non-yielding assets like gold. Investors are watching for insights from key Federal Open Market Committee (FOMC) members’ speeches, which could provide further cues on future interest rate changes.
Strengthening US Dollar Puts More Pressure on Gold
The US Dollar has extended its upward trend since Trump’s victory, reaching levels not seen since early July. This surge in the USD has led to intensified selling of gold as the stronger dollar makes the metal more expensive for overseas buyers. Trump’s proposed expansionary policies, including corporate tax cuts, are also expected to increase inflation pressures, which may further restrain the Federal Reserve from aggressively easing its monetary policy.
In comments made recently, Minneapolis Fed President Neel Kashkari emphasized the need for more substantial evidence before any further interest rate adjustments. This ongoing support for the USD, along with steady US Treasury bond yields, keeps gold prices under pressure. Trump’s pre-election promise of a universal 10% import tariff has also raised concerns about global trade tensions, sparking interest in the safe-haven qualities of gold, though this support appears limited for now.
Market Awaits Key Data and FOMC Insights for Future Direction
This week, traders are paying close attention to FOMC members’ speeches, including Fed Chair Jerome Powell, to gauge future rate policies. Speculations around the possibility of the Fed delaying its rate cuts are high, which may further impact gold. According to CME Group’s Fedwatch tool, there is now a 65% chance of a 25-basis-point rate cut by the Fed, with a 35% probability of no rate change at the upcoming December meeting.
Investors are also awaiting key economic data releases, such as the US Consumer Price Index and Producer Price Index. These indicators could significantly influence the future direction of gold prices by signaling the likelihood of a rate cut or hike.
Gold Price Technical Outlook – Potential for Further Decline
From a technical perspective, gold prices have broken below the 50-day Simple Moving Average (SMA), signaling a bearish trend. The daily chart also shows indicators gaining negative momentum, suggesting the path of least resistance may be downward. The $2,600 mark is a critical level, as it represents a 38.2% Fibonacci retracement of the previous rally and may serve as a key support level.
On the other hand, resistance could form around the $2,632-$2,635 area. A break above this point might trigger a short-term recovery, with gold potentially rising to the $2,659-$2,660 range and possibly further to the $2,700 mark if buying interest picks up. Sustained strength beyond $2,700 could signal an end to the recent downtrend, shifting sentiment back in favor of bullish investors.
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