Gold price (XAU/USD) continues to show a subdued performance during the first half of Friday’s European session. Despite lacking significant follow-through selling, the price remains close to the one-month high reached on Thursday. The US Dollar (USD) has gained some strength, breaking its three-day losing streak. This rebound is fueled by market confidence that the Federal Reserve (Fed) will pause its rate cuts later this month. Furthermore, a generally optimistic equity market sentiment adds pressure to the precious metal.
Key Factors Impacting Gold Price
USD Strength and Market Expectations
The USD’s recovery, supported by reduced expectations of immediate Fed rate cuts, has weighed on gold’s appeal. However, the potential for softer inflation in the US to prompt further rate reductions later this year limits the USD’s gains. This scenario provides some support to non-yielding assets like gold.
Trade and Tariff Uncertainties
Lingering concerns over US trade policies and tariffs also play a role in cushioning gold’s downside. While these uncertainties offer limited support, they contribute to gold’s resilience in the face of modest intraday losses.
Recent Data and Gold’s Reaction
Inflation and Rate Cut Speculations
This week’s US data indicated signs of easing inflation, fueling speculations of additional Fed rate cuts this year. Such expectations have pressured US Treasury bond yields, keeping the USD near its weekly lows and supporting the XAU/USD.
Economic Indicators
Recent reports highlighted:
- Retail Sales: December’s retail sales rose by 0.4%, while November’s figures were revised higher to a 0.8% increase.
- Philly Fed Manufacturing Index: Surged to 44.3, the highest since April 2021, reflecting robust manufacturing activity.
- Jobless Claims: Increased to 217K, suggesting potential vulnerabilities in the labor market.
These developments reinforce the likelihood of the Fed pausing its rate cycle later this month. However, uncertainties around fiscal policies and inflation risks persist.
Technical Perspective on Gold Price
Upside Potential
Technical indicators favor a bullish outlook. Sustained strength above the $2,715-$2,720 resistance zone could pave the way for further gains. Key levels to watch include:
- Intermediate resistance: $2,745
- Major resistance: $2,760-$2,762
- All-time high: $2,790 (reached in October 2024)
Downside Support
In the event of a pullback, gold is likely to find support near:
- Immediate support: $2,700-$2,690
- Deeper support: $2,662-$2,660
- Pivotal level: $2,635 (aligned with the 100-day EMA and an ascending trendline from November’s low)
Looking Ahead
Friday’s US economic releases, including Building Permits, Housing Starts, and Industrial Production data, may provide fresh market cues. Additionally, geopolitical developments such as the ceasefire deal announced by Israel’s Prime Minister could influence gold’s safe-haven demand.
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