06 Feb 2025

Gold prices have declined from their peak as investors choose to secure some profits.

A slight rebound in the US dollar, coupled with a favorable risk sentiment, appears to exert pressure on the XAU/USD pair.

Concerns regarding the US-China trade conflict and expectations of Federal Reserve interest rate cuts are likely to restrict the commodity's losses.

Gold prices (XAU/USD) experienced a decline on Thursday, retreating from the all-time high of approximately $2,882-2,883 reached the previous day. This movement occurs in the context of a favorable risk sentiment, as a slight rebound in the US Dollar (USD) from a one-week low encourages sellers to reduce their positions in the precious metal, which is currently perceived as slightly overbought. Nevertheless, this downward movement lacks significant momentum, suggesting that caution is warranted before concluding that the commodity has reached its peak in the short term.

Concerns persist among investors regarding a potential trade conflict between the US and China, along with the economic repercussions of trade tariffs imposed by US President Donald Trump. These factors may continue to provide support for the safe-haven appeal of Gold. Additionally, expectations that the Federal Reserve (Fed) will persist with interest rate cuts in 2025, coupled with the recent decline in US Treasury bond yields, are likely to bolster the non-yielding XAU/USD. Consequently, any corrective pullback is expected to be viewed as a buying opportunity, with limitations on the extent of the decline.

Gold price bulls turn cautious amid modest USD uptick and positive risk tone

US President Donald Trump's implementation of a 10% tariff on Chinese imports commenced on Tuesday. In response, China declared retaliatory tariffs on certain American products, intensifying concerns regarding a potential trade conflict and propelling the price of safe-haven gold to a new record high on Wednesday.

The Automatic Data Processing (ADP) reported an increase of 183,000 jobs in the private sector for January, an improvement from the previously revised figure of 176,000 for the prior month. However, this positive news was counterbalanced by the disappointing release of the US ISM Services PMI, which fell to 52.8 in January.

In light of the weaker economic data, US Treasury yields decreased to their lowest point since mid-December. Additionally, the anticipation that the Federal Reserve may reduce interest rates twice this year contributed to a decline in the US Dollar, reaching its lowest level in over a week, which further supported the appeal of the non-yielding gold.

US Treasury Secretary Scott Bessent stated late Wednesday that the primary objective is to reduce 10-year Treasury yields rather than focusing on the Federal Reserve’s short-term benchmark interest rate. He further remarked that interest rates will stabilize on their own if energy costs are lowered and the economy is deregulated.

1. The USD bulls encountered challenges following the hawkish comments made by Fed Vice Chair Philip Jefferson on Thursday, who expressed his contentment with maintaining the Fed Funds rate at its current level. He indicated a willingness to assess the overall impact of US President Donald Trump's policies. Investors are now focused on the upcoming US monthly employment figures, commonly referred to as the Nonfarm Payrolls report, scheduled for release on Friday, as they seek additional insights regarding the future trajectory of interest rates. Meanwhile, traders will be attentive to the publication of the standard US Weekly Initial Jobless Claims data on Thursday.

Gold price dip-buying could limit corrective slide; $2,773-2,772 holds the key

From a technical standpoint, the Relative Strength Index (RSI) has surpassed the 70 threshold, indicating a need for caution among bullish traders. Therefore, it would be wise to await a period of near-term consolidation or a slight pullback before making any further investments aimed at capitalizing on upward movement. Nonetheless, the recent breach of significant resistance levels implies that the prevailing trend for Gold prices is upward.

In the interim, any potential decline is expected to encounter support in the vicinity of the $2,855-2,850 range. Should the price fall below this level, it may decline further towards the $2,810-2,800 area. Additionally, the $2,773-2,772 horizontal resistance level, which has now become support, could trigger technical selling if breached, potentially leading to more substantial losses.