Gold (XAU/USD) faced a decline on Monday, aligning with broader commodity trends influenced by global economic growth concerns triggered by disappointing US employment figures last week.
The retreat in Gold prices can be attributed partly to rising US Treasury bond yields. These yields have been bolstered by increasing speculations that former President Donald Trump could secure victory in the upcoming November presidential elections. Analysts anticipate Trump’s policies, including tax cuts and increased spending, to potentially fuel inflation and interest rates, thereby dampening the appeal of non-interest-bearing assets like Gold.
Furthermore, profit-taking by short-term traders following Friday’s 1.45% surge in Gold prices has also contributed to the downward pressure.
As of Monday, Gold was trading in the $2,370s, down from Friday’s peak of $2,393 achieved post the release of US NonFarm Payrolls (NFP) data. Although the weaker-than-expected US labor market data in the NFP report has raised expectations that the Federal Reserve might initiate interest rate cuts sooner than anticipated—a bullish factor for Gold—the market sentiment has been overshadowed by concerns related to the “Trump effect” on bond markets.
Trump’s potential return to office, amidst doubts over President Joe Biden’s political future and the absence of a clear contender, has bolstered perceptions of Trump as a front-runner. Known for policies favoring tax reductions and deficit spending, Trump’s fiscal approach is likely to sustain inflationary pressures, thereby pushing up interest rates and Treasury yields—factors that typically weigh on Gold prices. The strengthening US Dollar, buoyed by these prospects, has further compounded the downward pressure on Gold, which is predominantly traded in USD.
Despite these headwinds, Gold has found some support from geopolitical tensions, notably conflicts in the Middle East and Ukraine, which continue to attract investors seeking safe-haven assets.
Moreover, efforts by the BRICS nations to reduce dependency on the US Dollar in global trade have bolstered the longer-term outlook for Gold. This initiative aims to mitigate the impact of US-led international sanctions, underscoring Gold’s role as a potential alternative global currency.
Additionally, robust demand from central banks, which represent a significant segment of the Gold market, remains a stabilizing factor. Asian central banks, in particular, have increased Gold reserves as a hedge against potential currency depreciation amid the recent strengthening of the US Dollar in early 2024.
In conclusion, while Gold faces immediate pressures from economic and political uncertainties, its status as a safe-haven asset continues to be supported by ongoing geopolitical tensions and strategic initiatives aimed at diversifying global currency reserves away from the US Dollar.
