Gold Holds Not Far From The All-Time High
Gold XAU/USD price dropped by 0.45% on Friday as the US dollar (USD) and Treasury yields increased. However, the bullion still managed to show a positive trend last week as uncertainties around Donald Trump's policies and renewed chances of further Federal Reserve (Fed) rate cuts lifted XAU/USD above the critical $2,700 level.
Despite a slight dip on Friday, the gold price was only $66 away from an all-time high last week. This was mostly because weaker-than-expected U.S. core inflation data fuelled speculation of multiple rate cuts by the Fed later this year. According to Reuters, traders are already pricing in two rate cuts by the end of 2025, especially after Christopher Waller, Fed Governor, hinted at the possibility of additional cuts if economic data weaken further. Gold doesn't generate income through interest or dividends as a non-yielding asset. Consequently, lower interest rates create a more favourable environment for gold, and XAU/USD tends to rise when the probability of more rate cuts in the U.S. increases.
XAU/USD was rising strongly during the Asian and early European trading sessions. Today's macroeconomic calendar is rather uneventful, so XAU/USD may continue to trade within an established $2,700–$2,720 range. Most U.S. markets will be closed in observance of Martin Luther King Jr. Day, further reducing volatility. At the same time, markets nervously await Trump's inauguration on 20 January. His broad trade tariffs are expected to ignite inflation and trigger trade wars, potentially increasing bullion's safe-haven appeal.
"There are question marks about the state of tariffs, how they'll be implemented. Many investors are looking to gold as a way of hedging some of the downside risks, should these new policies be damaging to growth", said Nitesh Shah, commodity strategist at WisdomTree.
'Spot gold may retest support at $2,691 per ounce, a break below which could open the way towards $2,670,' said Reuters analyst Wang Tao.
Euro Remains Under Bearish Pressure
The euro (EUR/USD) lost 0.26% against the U.S. dollar (USD) on Friday as the greenback strengthened partly due to solid real estate and construction data.
U.S. Census Bureau's report revealed U.S. single-family homebuilding hit a 10-month high in December, a positive sign for the housing market. However, rising mortgage rates and excess inventory pose a risk to continued recovery. Still, the report, combined with Friday's news of a surge in manufacturing output, driven partly by a recovery in Boeing’s production, suggests that the U.S. economy remained robust in Q4.
Meanwhile, a recent survey by Bloomberg showed that the euro area will deliver only 1% growth this year, slightly above the 0.8% estimated for 2024 and below the long-term average of 1.4%. The weak economic outlook increases the likelihood of faster interest rate cuts by the European Central Bank (ECB). The market continues to expect three or four 25-basis-point rate cuts by the ECB in 2025 compared with one or two reductions by the Fed over the same period. In these circumstances, it is hard to expect EUR/USD to rebound substantially from its recent lows.
EUR/USD was rising during the Asian and early European trading sessions. Today's macroeconomic calendar is rather light, so EUR/USD may continue to move within the established 1.02500–1.03200 range. In addition, most U.S. markets will be closed due to Martin Luther King Jr. Day, which should further reduce volatility.
Weak U.K. Economic Data Pushes The British Pound Down
The British pound (GBP/USD) lost 0.62% against the U.S. dollar (USD) on Friday as the greenback recovered, while U.K. retail sales data came out weaker than expected.
Contrary to expectations, U.K. retail sales declined in December, highlighting concerns about a potential economic contraction in Q4.
"The Bank of England (BOE) have a window of opportunity to cut rates in February, which we expect them to take", said Elliott Jordan-Doak, senior U.K. economist at Pantheon Macroeconomics.
Retail sales added to last week's run of weak economic data, which indicated a drop in November gross domestic product (GDP) and prompted investors to expect more rate cuts from the BOE later this year. Traders currently price in no less than two 50 basis points (bps) worth of rate cuts in 2025, with a 76% chance of a first 25-bps reduction on 6 February. Meanwhile, the Federal Reserve is expected to leave its rates unchanged until June, putting downward pressure on GBP/USD.
GBP/USD was rising during the Asian and early European trading sessions. There are no important macroeconomic events today, so GBP/USD may continue to trade within the established 1.21800–1.22200 range. In addition, most U.S. markets will be closed in observance of Dr. Martin Luther King Jr. Day, which should reduce volatility even further.