Gold Price Analysis: XAU/USD Struggles Below $2,050 Amid Rising US Dollar and Treasury Yields

During the early hours of the Asian trading session on Wednesday, the price of GOLD (XAU/USD) continues to face downward pressure, struggling to surpass the mid-$2,000 range. The persistent demand for the US Dollar (USD) coupled with increasing US Treasury yields are key factors contributing to the precious metal’s decline. Currently, gold is trading at $2,025, marking a slight 0.09% drop since the day’s start.

The US Dollar Index (DXY), which gauges the USD’s strength against a basket of major currencies from US trading partners, is witnessing a continued rise, reaching new year-to-date highs beyond the 103.30 level. Concurrently, US Treasury yields are on an upward trajectory, with the 10-year yield now at 4.05%.

Federal Reserve Governor Christopher Waller made a significant statement on Tuesday, indicating that the Fed is poised to reduce the federal funds rate target range within this year. Waller emphasized that any rate cuts should be implemented methodically and cautiously when the appropriate time arrives. Market expectations, as reflected in the CME FedWatch tool, suggest a 67% probability of the Federal Open Market Committee (FOMC) initiating rate cuts in March. Although expectations for 2024 initially surged to seven rate cuts, they were adjusted back to six following Waller’s remarks.

In the Middle East, the geopolitical landscape is becoming increasingly volatile. Houthi militants, backed by Iran, have launched a new wave of attacks on crucial global trade shipping lanes. This includes recent damage to a US-owned commercial vessel and an attempted strike on an American warship. Such escalations in the region are heightening concerns over potential supply disruptions, subsequently bolstering traditional safe-haven assets like gold.

On the economic front, China’s Premier Li Qiang announced on Tuesday that the country’s economy expanded by approximately 5.2% in 2023, exceeding the government’s official target without resorting to extensive stimulus measures. However, the focus now shifts to the upcoming Chinese economic data release on Wednesday. Forecasts suggest that China’s Industrial Production will hold steady at 6.6% year-over-year in December, while Retail Sales are expected to show a deceleration to 8% year-over-year in December, down from 10.1% in the previous report.

Market participants are keenly awaiting these Chinese economic figures, with their attention also turning to the US Retail Sales data due later on Wednesday. Predictions indicate a potential increase of 0.4% month-over-month, compared to the previous 0.3%. These data releases are likely to provide clearer insights into the future trajectory of GOLD prices.

Gold Technical Outlook

The GOLD price continues its downward trend, breaking through the $2037.50 level and moving towards the $2016.90 mark, which serves as an initial bearish target.

It is crucial to monitor the price action around this level, as a breach could pave the way for further bearish corrections, potentially targeting the $1977.46 level.