Gold prices (XAU/USD) extended their retreat from the record high reached on Thursday, dipping to a fresh daily low around $2,920 during the first half of the European session on Friday. The pullback comes amid a modest recovery in US Dollar (USD) demand, reversing part of the previous day’s sharp drop to its lowest level since December 10. Coupled with the Federal Reserve’s hawkish stance, this led to some profit-taking on the non-yielding yellow metal, which had been showing slightly overstretched conditions on the daily chart.
US Dollar Recovery and Federal Reserve’s Stance Weigh on Gold
The USD attracted some buyers, pushing the gold price lower. The Federal Reserve’s more hawkish outlook also contributed to the retreat, as markets now speculate that the Fed may hold off on future rate cuts amid persistent inflationary pressures. St. Louis Fed President, Alberto Musalem, expressed concerns that rising inflation expectations, combined with the risk of stagflation, could present a dual challenge for the US economy. These fears add to the cautious sentiment surrounding gold’s recent surge.
Despite the profit-taking, concerns about global trade tensions, particularly related to US President Donald Trump’s tariff plans, continue to provide support for gold. Trump’s plans to impose new tariffs on steel, aluminum, and Chinese imports have escalated fears of a global trade war, driving demand for safe-haven assets like gold. Additionally, expectations that Trump’s protectionist policies could stoke inflation have further reinforced the appeal of gold as a hedge.
Geopolitical Tensions and Economic Worries Support Gold’s Outlook
Trump’s tariffs have added to worries about the strength of the global economy, particularly after Walmart issued a softer-than-expected sales forecast, indicating potential weakness in consumer spending. Furthermore, the situation in Ukraine remains a key geopolitical factor, with intensifying drone attacks on Russian oil pumping stations dampening hopes for a peace deal. These tensions could continue to act as a tailwind for gold.
On the economic front, the US Dollar remains close to its lowest point since December, amid bets for additional rate cuts by the Fed. This could provide further support to gold. However, the Fed’s mixed signals, with some officials like Atlanta Fed President Raphael Bostic advocating for two more rate cuts, leave room for uncertainty. Traders are now awaiting fresh economic data, including the flash PMI prints and US economic reports, to gain more insight into global economic conditions, which could influence the precious metal’s direction in the short term.
Technical Analysis and Key Levels for Gold
From a technical perspective, gold’s daily Relative Strength Index (RSI) is approaching the 70 mark, indicating that bullish traders should exercise caution. However, the breakout above the $2,928-2,930 resistance zone suggests that the path of least resistance for gold remains upward, at least in the near term. A further pullback to around $2,900 could be seen as a potential buying opportunity, with support levels at $2,880 and $2,860-2,855 offering further downside protection.
Should gold break below the $2,900 mark, it could trigger deeper corrective moves toward the $2,800 zone, with $2,834 being an important intermediate support level. On the other hand, if gold consolidates and sustains above the $2,950-2,955 region, it may regain bullish momentum and continue its upward trajectory.
In summary, while gold faces some near-term pressure from USD strength and a hawkish Fed outlook, its safe-haven appeal due to geopolitical risks and inflation concerns remains strong. The precious metal’s outlook is likely to remain positive, with potential buying opportunities if the price retreats to key support levels.
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