Gold holds steady above $2,700 as world prepares for Trump 2.0

  • Gold price stabilizes in European trade as traders wait for President Donald Trump to take office.
  • US markets remain closed this Monday, although traders are preparing for an eventful week.
  • Gold holds at $2,700 as concerns of further decline mount.

Gold price (XAU/USD) trades marginally positive on Monday and remains around $2,700 after an earlier drop during the Asian session, as traders are concerned about President-elect Donald Trump’s inauguration as the 47th president of the United States (US) later in the day. Traders are evaluating what to do with their Bullion positioning with concerns about Trump’s policies, including tariffs and immigration, which could increase the value of safe-haven Gold but also lift the US Dollar (USD). Rising political and trade uncertainties and geopolitical tensions fueled recent gains in Gold.

Meanwhile, a minority group of bond traders believe the Federal Reserve’s (Fed) next move on interest rates will be to raise them rather than a rate cut as most market participants anticipate, Bloomberg reports. Based on options tied to the Secured Overnight Financing Rate (SOFR), those traders see a roughly 25% chance that the Fed’s next move will be to raise rates by the end of the year, according to a Bloomberg Intelligence analysis. That would be disastrous news for Gold, which, under normal conditions, has an inverse correlation with yields.

What’s Moving the Market Today: Hedge Funds Remain Bullish

  • State Street Global Advisors, one of the world’s largest investors, says gold prices could hit $3,100 an ounce this year, extending the 2024 rally that led the precious metal to its biggest annual gain in 14 years, Financial reported. Review.
  • The recent release of the Commitment of Traders (COT) of the Commodity Futures Trading Commission (CFTC) reveals that hedge fund managers have increased their net long positions in Gold and Silver to a 5-week high, according to Reuters .
  • In the Middle East, a ceasefire in the Gaza region has begun to take hold as Hamas released three female hostages in exchange for 90 Palestinians detained in Israeli prisons, Reuters reports.

Technical Analysis: Starting strong

Gold will be on a path of uncertainty in the coming days and weeks. A slew of instructions and directives are expected to be released once President-elect Donald Trump is inaugurated as the 47th president on Monday. The main tailwind is that many of the directions outlined are inflationary or could trigger geopolitical uncertainty, which, in both cases, is not beneficial for Gold.

There is quite a bit of downside risk, with no key levels nearby. If traders cannot sustain the price of Gold above $2,700, they should consider the descending trend line of last week’s broken pennant chart pattern at $2,669 as the next support. In case of further decline, the 55-day SMA at $2,647 is next, followed by the 100-day SMA at $2,644.

Looking up, the $2,708 level needs to be recovered before further upside is considered. Higher up, the next level to watch is $2,721, a sort of double top in November and December. Should Bullion break above that level, the all-time high of $2,790 is the key bullish barrier.

XAU/USD: Daily Chart

XAU/USD: Daily Chart

Gold FAQs

Gold has played a fundamental role in human history, as it has been widely used as a store of value and medium of exchange. Today, aside from its brilliance and use for jewelry, the precious metal is considered a safe-haven asset, meaning it is considered a good investment in turbulent times. Gold is also considered a hedge against inflation and currency depreciation, since it does not depend on any specific issuer or government.

Central banks are the largest holders of Gold. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and purchase Gold to improve the perception of strength of the economy and currency. High Gold reserves can be a source of confidence for the solvency of a country. Central banks added 1,136 tons of gold worth about $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the largest annual purchase since records exist. Central banks in emerging economies such as China, India and Türkiye are rapidly increasing their gold reserves.

Gold has an inverse correlation with the US Dollar and US Treasuries, which are the main reserve and safe haven assets. When the Dollar depreciates, the price of Gold tends to rise, allowing 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 the price of Gold, while sell-offs in riskier markets tend to favor the precious metal.

The price of Gold can move due to a wide range of factors. Geopolitical instability or fear of a deep recession can cause the price of Gold to rise rapidly due to its status as a safe haven asset. As a non-yielding asset, the price of Gold tends to rise when interest rates fall, while rising money prices tend to weigh down the yellow metal. Still, most of the moves depend on how the US Dollar (USD) performs, as the asset is traded in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold in check, while a weaker Dollar is likely to push up Gold prices.

Source: Fx Street

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