Gold (XAU/USD) opened the week with slight gains, rebounding from a three-week low recorded on Friday. However, the lack of strong buying momentum suggests lingering market caution.
Despite U.S. inflation data aligning with expectations, traders continue to factor in the possibility of two Federal Reserve interest rate cuts this year, each by 25 basis points. This outlook, coupled with renewed selling pressure on the U.S. dollar, has provided some support for gold prices. Additionally, concerns over potential economic fallout from former President Donald Trump’s tariff plans and ongoing geopolitical risks have bolstered demand for the safe-haven asset.
However, the absence of sustained buying indicates uncertainty regarding whether gold’s recent pullback from its all-time high has ended. Investors are also awaiting key U.S. macroeconomic data releases at the beginning of the new month for further direction.
Gold Supported by Rate Cut Expectations and Dollar Weakness
On Friday, the U.S. Bureau of Economic Analysis reported that the Personal Consumption Expenditures (PCE) Price Index rose 0.3% in January, bringing the annual inflation rate to 2.5%, slightly down from 2.6% in December. The core PCE Price Index, which excludes food and energy, also increased by 0.3% month-over-month but showed a notable slowdown to 2.6% year-over-year, compared to 2.9% in December.
The data also revealed a surprising 0.2% decline in U.S. consumer spending, marking the first drop since March 2023 and the sharpest contraction in nearly four years. This has fueled concerns about slowing economic growth.
According to the CME Group’s FedWatch Tool, traders are now pricing in a possible rate cut by the Federal Reserve as early as June, followed by another reduction in September.
Further weighing on the dollar, Trump reaffirmed his plan to impose tariffs on Canada and Mexico starting Tuesday. He also announced an intention to double the universal 10% tariff on Chinese imports, escalating trade tensions and increasing the risk of a global trade war—factors that could further boost gold prices.
Investors are now turning their attention to the U.S. ISM Manufacturing PMI, set for release later on Monday, followed by the highly anticipated Nonfarm Payrolls report on Friday. These data points are expected to provide further insight into the dollar’s trajectory and potential impact on gold.
Technical Outlook Suggests Caution for Gold Bulls
From a technical standpoint, last week’s breakdown below the 23.6% Fibonacci retracement level of the December-February rally signaled a bearish shift. Momentum indicators on the daily chart have begun showing negative traction, increasing the likelihood of an extended correction from gold’s record high.
Any short-term recovery may face resistance near the $2,885 level, followed by the $2,900 mark. A decisive move above these levels could push prices toward the $2,934 resistance, with the all-time high of $2,956 as the next key target.
Conversely, Friday’s low of $2,833-$2,832 serves as immediate support. A break below this level could lead to a decline toward the 38.2% Fibonacci retracement zone at $2,815-$2,810. If gold falls below the $2,800 threshold, it could signal a market top, paving the way for deeper losses.
Conclusion
Gold remains in a delicate position, supported by expectations of Federal Reserve rate cuts and a weaker U.S. dollar but facing technical resistance and market caution. Investors are closely monitoring economic data and geopolitical developments, which will likely shape the next move for gold prices.
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