Gold prices had lately broken below the $2,700 per ounce mark, a steep U-turn in market sentiment following the re-election of Donald Trump. The yellow metal was under pressure from a surging greenback, expanding risk appetite, and a Federal Reserve sounding the note of caution. With so many moving parts, investors are watching to see whether Donald Trump's proposed economic policies accelerate losses further or provide a lifeline for gold's appeal as a safe-haven asset.
Key Takeaways
Gold prices fell below their key levels near $2,700 on the back of a stronger dollar and a shift in broader market sentiment.
Trump economic policies may exacerbate upward pressures on inflation, which could weigh on gold demand.
Key technical levels indicate the next leg down if $2,660 support is breached.
Gold's near-term path will be determined by upcoming U.S. inflation data and Federal Reserve cues.
Trump's Economic Policies and Their Impact on Gold Prices
Protectionist trade policies, coupled with expansionary fiscal policies, are the expected economic policies from Trump that reorder the markets. Analysts estimate that in case Trump institutes higher tariffs, especially a proposed 60% tax on Chinese imports, inflationary pressures will grow substantially.
Market Response to Tariff Proposals
This could fuel inflation by pushing up consumer prices in the U.S. via the increased cost of imports. Gold does well in high or rising inflationary environments as protection against the loss of purchasing power from a debased currency. However, the higher interest rates that accompany this would offset this partly due to the opportunity cost of holding a non-paying asset like gold.
A Stronger Dollar Complicates Gold Outlook
That was further complicated by the recent strength of the U.S. dollar, which was boosted by investor optimism over Trump's fiscal policies. A strong dollar often makes gold more costly to foreign buyers, thereby weighing on demand.
Technical Analysis: Levels to Watch
The technical setup for gold suggests more turbulence ahead, as its near-term path will be carved out by crucial support and resistance levels.
Levels of Support to Note
The $2,660 zone has now properly aligned itself as a critical support area with the 50-day SMA. The sustained trading below $2,660 may open up the roadway to further downside action toward $2,643, last week's swing low. Analysts note that a close below $2,600 would probably confirm a trend reversal to the downside.
Resistance Zones
To the upside, gold faces strong resistance at $2,700, $2,718 and the supply zone of $2,740-45. Only a break above the resistances will confirm the resumption of the uptrend, for renewed possible advance to the all-time high of $2,790 printed on October 31.
The Role of the Fed
Recently, a 25-bp rate cut by the Fed handed below-par strength to the price of the yellow metal, while the tone from Fed Chair Jerome Powell seemed cautious regarding future ease.
Inflation Data, Fed Speeches in Focus
Gold direction this week could very well be determined by the release of U.S. Consumer Price Index data. A CPI reading at the Fed's target of 2% would preserve the status quo for the central bank - further pressuring the metal.
Further clarity will also emerge from the speeches of key Fed officials, including Powell. Markets, however, remain focused on signals on additional rate cuts or adopting a "wait and see" stance.
Geopolitical and Global Factors
In the din of Trump's policy headlines, other factors have assumed center stage as price drivers of gold.
China's Underwhelming Stimulus Measures
The recent announcement of a 10 trillion yuan debt package in China, below expectations, further adds to the global economic uncertainty. As China is seen as the world's largest consumer of gold, weak local demand may weigh further on the price.
Rising Geopolitical Risks
Despite the rise in tensions between Ukraine and Russia, gold has received little safe-haven demand. As markets are more worried about inflation and economic policy at this point in time, less attention has been drawn towards geopolitical turmoil.
Conclusion
Gold's slip below $2,700 underlines the complex interplay between Trump's economic policies, Federal Reserve actions, and broader market dynamics. While prospects for the metal longer-term are still expected to be driven by inflationary pressures and geopolitical risks, its near-term trajectory will largely depend upon this week's U.S. inflation data and Fed cues.
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