Gold prices (XAU/USD) continue to face downward pressure during the first half of the European session on Friday, though the precious metal remains near a one-month peak touched the previous day. While the US Dollar (USD) has regained some strength and broken a three-day losing streak, it has not been enough to push gold lower significantly. This shift in the USD is primarily due to growing expectations that the Federal Reserve (Fed) will halt its rate-cutting cycle later this month, in combination with a generally positive tone in equity markets, which has undermined demand for the safe-haven metal.
Despite this, expectations that US inflation will continue to soften could allow the Fed to cut interest rates further this year, which may cap any significant further appreciation of the USD and provide some support for gold prices. Additionally, uncertainty surrounding US President-elect Donald Trump’s trade policies and tariff plans could contribute to limiting any further losses in gold, which remains poised to close higher for the third consecutive day. Traders are now looking ahead to US macroeconomic data for fresh guidance.
Modest USD Strength Fails to Dent Gold Prices
Recent US economic data suggests signs of easing inflation, which has contributed to the belief that the Fed will cut interest rates twice in 2025, benefitting gold’s appeal as a non-yielding asset. On Thursday, Fed Governor Christopher Waller reiterated that inflation is expected to continue to ease, and he sees the possibility of three or four rate cuts later this year if economic conditions worsen.
The Fed’s outlook has also contributed to a further decline in US Treasury bond yields, keeping the USD near a one-week low, and lending support to gold. Meanwhile, the US Commerce Department’s report showed that Retail Sales increased by 0.4% in December, with the prior month’s data revised higher. Additionally, the Philly Fed Manufacturing Index surged to 44.3 this month, surpassing even the most optimistic expectations.
However, the US Labor Department’s Jobless Claims data showed a rise to 217,000 for the week ending January 10, up from 203,000, providing a mixed picture of the US labor market and fueling concerns that inflation could be stoked by US President-elect Trump’s policies.
In geopolitical news, Israeli Prime Minister Benjamin Netanyahu announced a ceasefire deal with Hamas, ending 15 months of conflict and facilitating the release of hostages held in Gaza.
Looking ahead, Friday’s US economic releases, including Building Permits, Housing Starts, and Industrial Production data, could influence both the USD and gold prices.
Technical Outlook: Gold Poised for Further Gains Above $2,720
From a technical standpoint, bullish momentum is supported by positive oscillators on the daily chart, which suggest that further gains are possible. However, it may be prudent to wait for gold to break above the $2,715-2,720 resistance zone before committing to new bullish positions. A move above this zone could pave the way for gold to reach the $2,745 level and potentially challenge the all-time high around $2,790, set in October 2024.
On the downside, any corrective pullbacks are likely to find solid support around the $2,700-2,690 region. A deeper decline could present a buying opportunity near the $2,662-2,660 area, which is seen as a pivotal level. If gold falls below this support, it could test the $2,635 zone, eventually moving toward the $2,650 region, where it would encounter the 100-day Exponential Moving Average (EMA) and an ascending trendline from November’s swing low.
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