03 Mar 2025

Gold prices experienced a modest increase on Monday, supported by a slight decline in the US Dollar. Speculation regarding potential interest rate cuts by the Federal Reserve has weakened the USD, thereby benefiting the XAU/USD pair. Additionally, apprehensions surrounding President Trump’s tariff initiatives and the prospect of a global trade conflict have further bolstered the appeal of this commodity.

During the early European session on Monday, gold prices (XAU/USD) faced challenges in extending their modest intraday gains, although they managed to remain above a three-week low reached on Friday. Market participants are factoring in the likelihood of the Federal Reserve implementing two rate cuts of 25 basis points each by year-end, driven by indications of declining consumer sentiment. This scenario has hindered the US Dollar's ability to sustain a recovery from a two-month low experienced last week, thereby enhancing demand for the non-yielding yellow metal.

Moreover, increasing concerns regarding the potential economic repercussions of President Trump's trade tariffs, along with geopolitical uncertainties, have emerged as additional factors supporting the safe-haven status of gold. However, a generally optimistic sentiment in equity markets is limiting any significant upward movement for the precious metal. Traders appear to be exercising caution, opting to await key US macroeconomic data releases later this week before making new directional investments, which suggests a need for prudence before concluding that the recent corrective pullback from the all-time high has fully played out.

The US Bureau of Economic Analysis announced on Friday that the Personal Consumption Expenditures (PCE) Price Index experienced a 0.3% increase in January, with a year-over-year rise of 2.5%, a slight decrease from the 2.6% recorded in December. Additionally, the core PCE Price Index, which omits the more volatile food and energy sectors, also rose by 0.3% last month and reached an annual increase of 2.6% in January, reflecting a significant slowdown from the 2.9% observed in the preceding month.

The report further indicated an unexpected decline in US consumer spending, which fell by 0.2% last month, marking the first decrease since March 2023 and the largest drop in nearly four years, raising concerns regarding the outlook for US economic growth.

According to the CME Group's FedWatch Tool, market participants are anticipating that the Federal Reserve may resume interest rate cuts during the policy meeting in June, with further reductions expected in September.

This situation is compounded by concerns that US President Donald Trump's trade tariffs could negatively impact consumer spending and hinder the US Dollar's ability to benefit from a recent recovery from a two-month low. Trump has confirmed the implementation of tariffs on Canada and Mexico starting Tuesday and plans to double the existing 10% universal tariff on imports from China, increasing the risk of a global trade conflict and potentially boosting the price of safe-haven Gold.

Traders are now looking forward to the US ISM Manufacturing PMI for potential market direction later this Monday. In addition, other significant US macroeconomic releases, including the Nonfarm Payrolls report scheduled for Friday, are expected to influence the short-term trajectory of the USD.

Gold price bears have the upper hand; 23.6% Fibo. level support breakdown in play

From a technical standpoint, the decline observed last week beneath the 23.6% Fibonacci retracement level of the December-February rally was interpreted as a significant catalyst for sellers. Additionally, the oscillators on the daily chart have recently begun to exhibit negative momentum, reinforcing the likelihood of a continued corrective pullback from the all-time high.

Consequently, any subsequent upward movement may still be regarded as an opportunity for selling, likely facing resistance near the $2,885 level. This is closely succeeded by the $2,900 threshold, above which the price of Gold could potentially ascend to the intermediate resistance at $2,934, on the way to the record high near $2,956.

Conversely, the swing low recorded on Friday, around the $2,833-2,832 range, appears to provide immediate support against further declines. Should the price fall below this level, it could drop to the 38.2% Fibonacci level, approximately in the $2,815-2,810 area. A continuation of selling pressure beneath the $2,800 mark would indicate that the commodity has reached its peak, potentially leading to more significant losses.