- Gold bids fell back below $2,650, paring the week’s gains at the end of the week.
- Market risk appetite recovered on Friday after US ISM data improved.
- The Fed’s comments also helped calm investors’ fears, while the Fed’s Barkin calmed market fears.
The XAU/USD pair fell on Friday, with gold prices falling nearly two-thirds of a percent and falling back below $2,650 an ounce as market sentiment recovered from risk appetite at the start of the week. It has been a shaky start for global markets during the first week of the 2025 trading season, but investors are still looking for reasons to strengthen their position as the new year approaches.
Richmond Fed President Tom Barkin spoke to the Maryland Bankers Association on Friday, highlighting that the Fed has already cut interest rates by a full percentage point through 2024, bringing the federal funds rate down to 4.25. %-4.5% ranges. The US unemployment rate has also remained steady at historically low levels, while inflation appears to be drifting back towards the Fed’s target of 2% per year. The Fed’s Barkin also downplayed the potential negative impacts of incoming President Donald Trump’s plans to enact sweeping tariff proposals on his first day in office that would see the United States functionally engaged in simultaneous trade wars with all of the United States’ closest allies and trading partners unilaterally. . According to Fed policymaker Barkin, markets should not be too concerned about potential tariffs of 10% to 20% on all goods imported into the United States, because “the transition from tariffs to prices is not easy, it depends on factors Multiple including. Commercial supply chains and consumer price elasticity.
Next week, US markets and institutions will take a holiday on Thursday to mark the death of former President Jimmy Carter, who died on December 29 at the age of 100. Friday will be followed by the first US Nonfarm Payrolls (NFP) report. For the year 2025.
Gold price forecast
Gold prices have been subject to severe cyclical fluctuations during the last quarter of 2024, with XAU/USD bids routinely hovering around the $2,650 level. Gold’s sideways movement is best highlighted by the 50-day Exponential Moving Average (EMA), which has been moving sideways since early November and acts as a bid trap, keeping price action restricted.
The bulls have repeatedly failed to bring prices back above $2,720, while selling pressure remains supported by the near-term technical floor at $2,600.
Daily chart of XAU/USD
Frequently asked questions about gold
Gold has played a major role in human history as it has been widely used as a store of value and a medium of exchange. Currently, apart from its luster and use in jewellery, the precious metal is widely viewed as a safe haven asset, meaning it is a good investment during turbulent times. Gold is also widely viewed as a hedge against inflation and currency depreciation because it is not dependent on any specific issuer or government.
Central banks are the largest holders of gold. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and purchase gold to improve the perceived strength of the economy and the currency. High gold reserves can be a source of confidence for a country’s solvency. Central banks added 1,136 tons of gold worth about $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest annual purchase since records began. Central banks in emerging economies such as China, India and Turkey are rapidly increasing their gold reserves.
Gold has an inverse relationship with the US dollar and US Treasuries, which are major reserve assets and safe havens. When the value of the dollar declines, gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rise in the stock market tends to weaken the price of gold, while a sell-off in riskier markets tends to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession could cause the price of gold to rise rapidly due to its safe-haven status. As a lower-yielding asset, gold tends to rise as interest rates fall, while a higher cost of money usually negatively impacts the yellow metal. However, most of the moves depend on how the US Dollar (USD) behaves as the asset is priced in Dollars (XAU/USD). A stronger dollar tends to keep the price of gold in check, while a weaker dollar is likely to push gold prices higher.