28 Feb 2025

Gold prices continue to attract sellers for the second consecutive day, influenced by a generally stronger US Dollar. The prevailing risk-averse sentiment and declining US bond yields provide little support for the precious metal. Traders are now anticipating the release of the US Personal Consumption Expenditure (PCE) Price Index, seeking significant momentum.

The price of gold (XAU/USD) extends its downward trend this week, following a retreat from its all-time high, and experiences further losses for the second day on Friday. This marks the third decline in four days, bringing the commodity to a level not seen in over three weeks, hovering around the $2,850 mark during the early part of the European session. The expectation that the Federal Reserve (Fed) will maintain its hawkish approach in light of persistently high inflation contributes to the US Dollar's recovery from a two-month low reached on Wednesday. This dynamic is a significant factor exerting downward pressure on the non-yielding yellow metal.

Additionally, the decline may be linked to repositioning trades ahead of the US PCE Price Index release. This critical inflation data could impact the Fed's interest rate projections and shape the short-term outlook for gold prices. Meanwhile, the intraday decline appears unaffected by the risk-off sentiment that typically benefits safe-haven assets. Concerns regarding US President Donald Trump's tariff strategies and falling US Treasury bond yields also fail to provide any support, suggesting a potential for further depreciation in the XAU/USD pair in the near term.

Daily Digest Market Movers: Gold price bulls remain inactive as the USD strengthens broadly

Recent data released on Thursday indicates that inflation in the United States is on the rise, reinforcing the argument for the Federal Reserve to maintain steady interest rates. This development supports the US Dollar in its recovery from a low not seen in over two months, while simultaneously pushing the non-yielding Gold price down to its lowest point in over two weeks as of Friday.

The US Bureau of Economic Analysis has published the second estimate of the US Gross Domestic Product, revealing that the economy expanded at an annualized rate of 2.3% during the final quarter of 2024, consistent with previous estimates. Additionally, the GDP Price Index increased by 2.4%, surpassing the initial estimate of 2.2%.

These findings come amid concerns that US President Donald Trump's policies may reignite inflation. Furthermore, Federal Reserve officials are cautious about potential interest rate cuts in light of persistent inflation, which continues to support the USD and diverts investment away from the non-yielding yellow metal.

Kansas City Fed President Jeff Schmid remarked on Thursday that recent surveys have shown an increase in consumer inflation expectations, emphasizing the need for the central bank to remain vigilant in managing price pressures.

In a related statement, Cleveland Fed President Beth Hammack indicated that interest rates are likely to remain unchanged for the time being, as inflation data increasingly presents challenges for central policymakers.

Separately, Philadelphia Fed President Patrick Harker observed that progress toward the 2% inflation target has decelerated, and that the current policy rate remains restrictive, continuing to exert downward pressure on inflation.

• Hence, the market focus will remain glued to the release of the US Personal Consumption Expenditure (PCE) Price Index, due later during the North American session. The crucial inflation data will influence the Fed's interest rate outlook, which will drive the USD and provide some meaningful impetus to the XAU/USD pair. 
• Meanwhile, investors remain worried about the potential economic fallout from Trump's tariff plans. In fact, Trump said that his proposed tariffs on Canada and Mexico would come into effect on March 4 as scheduled and has also threatened to announce a 25% tariff on imports from the European Union.

Gold price builds on the breakdown momentum below the 23.6% Fibo. level, remains vulnerable

From a technical standpoint, the recent decline has caused the Gold price to fall below the 23.6% Fibonacci retracement level associated with the December-February rally. Additionally, the oscillators on the daily chart have begun to exhibit negative momentum, supporting the likelihood of a continuation of this week's corrective pullback from the all-time high. A further decline below the horizontal zone of $2,856-2,855 will reinforce the negative sentiment and could lead the XAU/USD pair towards the next significant support level around $2,834, as it approaches the 38.2% Fibonacci level near the $2,815-2,810 range. The $2,800 threshold is critical; a decisive breach here would indicate that the commodity has reached its peak and could result in more substantial losses.

Conversely, a rebound above the $2,867 level (23.6% Fibonacci retracement) may encounter significant resistance near the peak observed during the Asian session, around the $2,885 area, prior to reaching the $2,900 mark. A sustained move beyond this point could propel the Gold price further towards the $2,915 horizontal support level, which is now considered a crucial pivot. Continued buying pressure would shift the market sentiment back in favor of bullish traders, potentially exposing the all-time high near the $2,956 region, with an intermediate resistance level around the $2,934 zone.