The gold price (XAU/USD) has fallen to near $2,600 in Monday’s North American session. This comes as the US Dollar recovers its intraday losses and turns positive. With the US Dollar Index (DXY) going back above 108.00, the higher value of the US Dollar makes gold a more expensive bet for market participants.
Factors Affecting Gold Price
US Dollar’s Role
The US Dollar gains as the Federal Reserve signals fewer interest rate cuts for 2025. Fed policymakers have indicated a smaller number of rate cuts for the next year since they’re upbeat about the US economic growth. Also, a slowdown in the disinflation trend and better labor market conditions than earlier expected by Fed officials contribute to the need for a gradual policy-easing cycle.
Treasury Yields’ Impact
10-year US Treasury yields tumbled to 4.55% on Monday. Usually, lower yields on interest-bearing assets weigh on non-yielding assets like gold by increasing their opportunity costs. However, the relationship seems different on Monday.
Fed’s Interest Rate Outlook
The Fed reduced its key borrowing rates by 100 basis points (bps) to the range of 4.25%-4.50% this year and is expected to leave them unchanged in January. Analysts at Goldman Sachs expect the Fed to deliver its next interest rate cut in March, followed by two more in June and September.
Gold Technical Analysis
Chart Formation and Moving Average
Gold price trades in a Symmetrical Triangle chart formation on a daily timeframe, showing a sharp volatility contraction. The 20-day Exponential Moving Average (EMA) near $2,630 overlaps gold’s price, suggesting a sideways trend.
RSI Indicator
The Relative Strength Index (RSI) oscillates in the 40.00-60.00 range, which indicates indecisiveness among market participants.
Price Breakout Scenarios
Looking up, the gold price would strengthen if it makes a decisive break above the December high of $2,726.00. On the other hand, if the asset breaks below the November low around $2,537.00, the bears would strengthen.
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