Gold prices are making a second push upwards, currently hovering around $2684 per ounce. This cautious optimism comes ahead of crucial US inflation data, which is expected to heavily influence the Federal Reserve’s future policy direction, particularly as Donald Trump prepares to begin his second term as President next week.
Trump’s Policies and Fed Rate Hikes
Trump’s known pro-inflationary policies, including potential tariff hikes, are fueling speculation that the Fed might have to tighten monetary policy. Higher borrowing costs typically decrease the appeal of gold, which doesn’t offer interest. This is further compounded by high energy costs in Europe, which have made any interest rate cuts by the European Central Bank less likely.
Dollar Retreats Before Key Inflation Figures
The US Dollar Index (DXY) has seen a retreat from a two-year peak of 110.17 to the 109.00 level, a move taking place ahead of the important Consumer Price Index (CPI) announcement. While US producer prices rose less than expected this past month, the annual increases were still significant. A Bloomberg report indicating a cautious approach to tariffs gave temporary comfort to investors. However, despite these developments, the US dollar remains robust, and the market predicts only a single Fed interest rate cut in the latter half of 2025.
Market Factors to Watch
Keep an eye on several factors influencing gold:
- Geopolitical tensions: As these tensions rise, so does gold’s appeal as a safe-haven asset.
- Central bank gold purchases: Continued record purchases suggest ongoing confidence in gold.
- US Treasury Yields: The 10-year Treasury yield has hit 4.8%, a high since October 2023, indicating expectations for sustained higher interest rates.
These factors indicate that the potential for increased interest rates and a stronger dollar could suppress gold prices, while geopolitical instability and central bank purchasing could support them.
Gold Price Outlook
Analysts still view the overall trend for gold as bullish. The $2700 level remains a critical point. If gold breaks through this level, it could encourage more buying, potentially stopping the dollar’s rise if inflation figures disappoint and global unrest increases.
On the downside, key support levels to watch are $2665, $2652, and $2638. A strategy of buying at these dip levels is currently favored. Technical indicators such as the RSI and MACD suggest further upward potential before the market becomes overbought.
In Summary:
The gold market is experiencing an interesting moment. As we approach the announcement of key US inflation data and Trump’s inauguration, gold is caught between opposing pressures. Keep an eye on the $2700 mark, which could act as a turning point.
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