Gold prices fell over 1% on Friday and have decreased by more than 3% throughout the week due to a stronger US Dollar, which reached a ten-day high of 107.66. The XAU/USD pair is currently at $2,845, having previously peaked at $2,885.
US President Donald Trump announced a 25% tariff on imports from Mexico and Canada, effective March 4. Concerns about new trade policies and recent economic data have contributed to market uncertainty.
Fed Policy and Market Expectations
The Core Personal Consumption Expenditures (PCE) Price Index showed inflation aligning with the Fed’s 2% target. Predictions suggest that the Federal Reserve may cut interest rates by 70 basis points in 2025, beginning as early as June.
Revised GDP estimates indicate a contraction from 2.3% growth to -1.5% for the first quarter of 2025. The yield on the 10-year US Treasury note declined by three basis points, coinciding with the rise of the US Dollar amidst recession fears.
Cleveland Fed’s Beth Hammack expressed doubts about a rate hike, citing uncertainties related to trade policies. The core PCE increased by 0.3% month-over-month and rose by 2.6% year-over-year, whereas the headline PCE remained steady at 2.5% year-over-year.
Despite tariff implications, the yield on the 10-year US Treasury note stands at 4.229%, which has curbed Gold’s declines. Real yields, reflected by the US 10-year Treasury Inflation-Protected Securities (TIPS), fell to 1.853%. Goldman Sachs has updated its Gold price target, predicting $3,100 by the end of 2025.
Gold’s technical outlook shows bearish candles, indicating that traders may be adjusting portfolios. After dropping below the $2,900 level, XAU/USD is aiming for $2,832, with a daily close above $2,850 potentially reviving bullish sentiments.
Key Levels to Watch
Key resistance remains at $2,900, while Gold’s support levels are at $2,800 and the 50-day Simple Moving Average (SMA) sits at $2,770. Central banks, especially in emerging economies, added a record 1,136 tonnes of Gold to reserves during 2022.
Gold’s price movements are often inversely correlated with the US Dollar and Treasury yields. Factors such as geopolitical instability and interest rate changes impact Gold prices, reinforcing its role as a safe-haven asset in uncertain economic conditions.
The past week’s decline in Gold prices can largely be attributed to the US Dollar’s strength, which has gained momentum off the back of rising expectations surrounding monetary policy. With the Dollar Index climbing to 107.66, the appeal of non-yielding assets like Gold has waned. The dip below $2,900 has reinforced cautious sentiment among traders, with key support levels now coming into focus. Attention must remain on $2,800, while a bounce above $2,850 could change short-term direction.
Trade developments remain a focal point after Donald’s decision to impose a 25% tariff on imports from Mexico and Canada. These policies could introduce supply chain disruptions and inflationary pressures, which may, in turn, influence the Federal Reserve’s decisions. So far, inflation figures from the Core Personal Consumption Expenditures (PCE) Price Index remain within the Fed’s 2% target. The yearly increase of 2.6% in core PCE suggests pricing pressures persist but are not intensifying rapidly enough to push the central bank towards rate hikes.
Fed officials have taken a cautious stance, with Beth noting the uncertainty stemming from trade policies. With Gross Domestic Product (GDP) estimates now pointing towards a contraction of 1.5% in the first quarter of 2025—down from an earlier 2.3% growth projection—recession fears have come to the forefront. This shift in expectations has coincided with the drop in the 10-year Treasury yield, which has eased by three basis points, further influencing trader sentiment.
Despite these concerns, real yields have slipped to 1.853%, which has helped cushion some of Gold’s losses. The relationship between Treasury yields, the Dollar, and Gold remains a pivotal dynamic, particularly with market participants now predicting a total of 70 basis points in rate cuts in 2025, potentially starting in June.
Goldman Sachs has revised its price target upwards, now projecting $3,100 by the end of 2025. While this provides longer-term optimism, traders are currently focused on technical indicators, observing how Gold reacts around support zones. The 50-day Simple Moving Average at $2,770 represents another level that could come into play if further downside materialises.
Emerging economies continue to accumulate Gold at an aggressive pace, with central banks adding 1,136 tonnes in 2022. These purchases reflect ongoing concerns over economic uncertainty, reinforcing Gold’s role as a store of value. While inflation figures have stabilised for now, any deviation in upcoming data releases could influence both rate expectations and Gold price volatility in the weeks ahead.
The Dollar’s behaviour, Treasury yields, and positioning from institutional investors will remain key in shaping price movements. With fundamental and technical factors pointing to mixed signals, traders will need to monitor how macroeconomic data impacts sentiment before positioning for the next major move.
