Gold Struggles Near One-Month Low as USD Strengthens, Bears Target $2,600 Break

• Gold prices remained near their lowest levels since Oct. 10.
• The Trump-related market has kept bond yields near multi-month highs, putting pressure on XAU/USD.
• Rising US bond yields have raised expectations of further declines in precious metals.

Gold prices (XAU/USD) remained on the defensive during the Asian session on Tuesday, currently trading slightly above the previous day’s lowest level since Oct. 10. The dollar is near a four-month high and stocks continue to weaken on hopes for Donald Trump’s expansion plans. In addition, rising U.S. Treasury yields are another weight on nonprofits as Trump’s tariffs and corporate tax cuts threaten to stoke inflation.

Still, concerns that Trump’s protectionist policies could lead to a trade war and affect the global economy have provided some support for gold prices. Investors may also be wary of speculating on US consumer market data this week. In addition, comments from powerful FOMC members, including Fed Chair Jerome Powell, will also be seen as clues about the path of rate cuts. This will play a significant role in boosting USD demand and will help determine the closeness of the XAU/USD pair.

Gold bears take control, driven by dollar rally and rising US Treasury yields

• The US dollar continued its rise and reached its highest level since early July after Donald Trump won the US presidential election, which led to a major sell-off in gold prices on Monday.
• Trump’s expansionary policies and corporate tax cuts could put pressure on inflation and limit the Fed’s ability to ease monetary policy further, supporting the dollar.
• Minneapolis Fed President Neel Kashkari said on Sunday that the central bank wants to have confidence and needs to see more evidence that inflation will go back to the 2% target before deciding on further interest rate cuts.
• The US Treasury bond yields hold steady below the post-US election swing high as investors assess broader implications of Trump’s victory in the US presidential election on fiscal policy and interest rate cut expectations.
• Before the election, Trump had pledged to impose a universal 10% tariff on imports from all countries. This fuels concerns about an escalation of the global trade war and offers some support to the safe-haven XAU/USD.
• Traders now await speeches from influential FOMC members, including Fed Chair Jerome Powell, for cues about the future of interest rates in the US amid speculations that the US central bank might delay its easing cycle.
• Traders now see a 65% chance the Fed will cut rates by another 25 basis points and a 35% chance of “no change” at the next FOMC meeting in December, according to CME Group’s Fedwatch tool.
• Investors will also be watching for economic data on U.S. consumer goods and the U.S. Producer Price Index (PPI) this week, which will help determine the next round of commodity prices.

Gold prices continue to fluctuate, 50-day moving average broken

Theoretically, a break below the 50-day simple moving average (SMA) would be seen as a new downtrend. Also, oscillators on the calendar have gained negative momentum but are still far from the sell zone, suggesting that the minimum path for gold prices is down.

However, the overnight downtrend has stalled ahead of the $2,600 level, which represents the 38.2% Fibonacci retracement of the June-October rally and should be a significant pivot. Confidence below this will lead to a continuation of the pullback from the all-time high and drag the price of gold towards the $2,540-$2,539 range, including the 50% Fibonacci. A decision to break above this level and the 100-day moving average will confirm that the XAU/USD pair is bullish in the short term.

On the other hand, the $2,632-$2,635 area seems to be the immediate concern at the moment and a short-term hold above this area could bring the price of gold back to normal at $2,659-$2,660. Continued strength beyond the breakout should lead to the $2,684-$2,685 area, the $2,700 mark and the $2,710 area. Some follow-through buying could signal that the recent correction is over and the trend is back to bullish traders.