Gold prices (XAU/USD) extended their downward trend on Friday, continuing a retracement from recent all-time highs. The precious metal, having already fallen for two consecutive days, is now hovering near the $2,850 mark, a level not seen in over three weeks. The decline is largely attributed to the strengthening US Dollar (USD), which is benefiting from expectations that the Federal Reserve (Fed) will maintain its hawkish stance amid persistent inflation.
This week’s downturn marks the third time in the past four sessions that gold has posted losses. The US Dollar’s recovery from a two-month low on Wednesday has placed additional pressure on gold, a non-yielding asset. The Fed’s commitment to tackling high inflation continues to weigh heavily on gold, which is sensitive to interest rate expectations.
Market Sentiment and US PCE Data Impact
Traders are also adjusting their positions ahead of the US Personal Consumption Expenditure (PCE) Price Index data, a key inflation measure due for release later today. The PCE report is anticipated to influence the Fed’s interest rate decisions, potentially affecting gold’s near-term outlook.
Despite some risk-off sentiment in the market, typically supportive of safe-haven assets like gold, other factors have kept the yellow metal under pressure. US President Donald Trump’s tariff plans, as well as the decline in US Treasury bond yields, have failed to provide any significant support to gold. These factors suggest further downside risks for gold in the short term.
Economic Data and Fed Outlook
Thursday’s economic data further reinforced the USD’s bullish momentum. US inflation continues to rise, strengthening the case for the Fed to keep interest rates unchanged for the time being. This has contributed to the USD’s recovery from a two-month low, which, in turn, has dragged gold prices to a two-week low on Friday.
The US Bureau of Economic Analysis revealed that the US economy expanded at a 2.3% annualized rate in the final quarter of 2024, in line with previous estimates. Additionally, the GDP Price Index rose 2.4%, slightly higher than the initial forecast of 2.2%. These figures have fueled concerns that Trump’s tariff policies could reignite inflation, prompting further caution from the Fed.
Federal Reserve officials have expressed concerns over inflationary pressures. Kansas City Fed President Jeff Schmid highlighted a rise in consumer inflation expectations, emphasizing the central bank’s need to remain focused on controlling price pressures. Meanwhile, Cleveland Fed President Beth Hammack noted that interest rates are likely to remain steady for now, as inflation continues to pose challenges. Philadelphia Fed President Patrick Harker also observed that progress toward the Fed’s 2% inflation target has slowed.
Looking Ahead to PCE Data
The market’s focus will now shift to the upcoming release of the US PCE Price Index, which will likely have a significant impact on the Fed’s interest rate outlook and, consequently, on the US Dollar and gold prices. The data’s implications could drive the next phase of gold’s price movement.
Gold Technical Analysis
From a technical standpoint, gold remains vulnerable to further declines. The latest drop has pushed the price below the 23.6% Fibonacci retracement level of the December-February rally. Daily chart indicators are starting to show negative momentum, suggesting that the corrective pullback from gold’s all-time high may extend.
If gold falls below the $2,855-$2,856 range, the negative momentum is likely to strengthen, with potential support near the $2,834 level. A move below this level could signal a deeper correction, with the next major support at around $2,815-$2,810. If gold breaks decisively below $2,800, it could confirm that the commodity has reached its peak, opening the door for further losses.
On the upside, gold would need to regain momentum above the $2,867 area (the 23.6% Fibonacci level) to reverse the current trend. If the price surpasses $2,885, the next resistance would be at $2,900, followed by the $2,915 region. A sustained move above $2,915 could reignite bullish momentum, potentially testing the all-time high near $2,956.
Conclusion
In conclusion, gold prices are under significant pressure as they approach a three-week low, driven by a stronger US Dollar and expectations of the Federal Reserve maintaining a hawkish stance on inflation. The upcoming US PCE Price Index data will be pivotal in shaping both the Fed’s future interest rate decisions and gold’s near-term trajectory. With a bearish technical outlook and concerns over rising inflation and US economic policies, the path for gold remains uncertain. However, any positive surprise from the inflation data or shifts in market sentiment could reverse the current trend, making the next few days crucial for determining the future direction of gold prices. Investors and traders alike will be closely monitoring these developments as the market prepares for potentially significant price movements.