Gold Plunges Amid Stock Market's Sell-Off
Gold (XAU/USD) prices fell by 1.09% on Monday as investors closed their long positions in response to a wider market downturn. This happened due to the news that DeepSeek, a Chinese Artificial Intelligence startup, threatens the dominance of US AI companies like Nvidia (NASDAQ:NVDA).
The sharp decline in global equity markets has sparked a major sell-off across other assets, with US Treasury yields dropping to a three-week low and the US Dollar Index hitting its lowest since 18 December.
"This sell-off (in gold) is very much driven by the broad equity market rather than just the normal interest rates or currency. I think it's a liquidity issue, and gold is being sold along with other risk assets", said Bart Melek, head of commodity strategies at TD Securities.
Fundamentally, XAU/USD remains in a bullish trend, and market monetary policy expectations are still rather favourable for gold. Interest rate swaps market data implies a 45% chance that the Federal Reserve (Fed) will cut the rates by 25 basis points (bps) by mid-2025.
"Gold remains fairly well bid. Safe haven demand is going to continue to support. We will ultimately break out to new all-time highs as there's ongoing uncertainty about the Trump administration's policy agenda", said Peter Grant, vice president and senior metals strategist at Zaner Metals.
XAU/USD was relatively flat during the Asian and early European trading sessions. Today, traders should focus on US macroeconomic reports: Durable Goods Orders at 1:30 p.m. UTC and CB Consumer Confidence at 3:00 p.m. UTC. Better-than-expected results might push the gold price down towards $2,730. Conversely, worse-than-expected results may pull XAU/USD above 2,745.
"Spot gold may break support at $2,737 per ounce and fall towards $2,690", said Reuters analyst Wang Tao.
Euro Benefits from USD Weakness
The euro (EUR/USD) rallied past 1.05000 against the US dollar (USD) on Monday but later retraced and finished the day essentially unchanged.
A free, open-source AI model launched by Chinese startup DeepSeek sent ripples through the market yesterday, triggering a sell-off in technology stocks and weakening the US dollar. DeepSeek's AI assistant, boasting lower data and chip requirements, presents a potential challenge to the dominant narrative that has boosted US technology stocks, especially chipmaker Nvidia.
"A lot of people seem to be taking a pretty large leap here that DeepSeek is unsettling the major tech names that's going to lead to a rout in equities, and a rout in equities is going to cause the Fed to be supportive", said Eugene Epstein, head of structuring for North America at Moneycorp in New Jersey.
According to Reuters, foreigners were large record buyers of US stocks in December, and the US dollar weakened as they liquidated their positions yesterday. 'Many people were concerned already that US stocks were overvalued. DeepSeek exposes these concerns. That is why the Japanese yen and the Swiss franc have done relatively well', said Marc Chandler, chief market strategist at Bannockburn Global Forex.
It seems reasonable to infer that the recent rally in EUR/USD is mostly due to the US dollar's weakness rather than the euro's strength. Indeed, yesterday's eurozone macroeconomic reports were relatively weak. The Belgian Business Climate Index dropped, while the German Ifo Business Climate Index rose only marginally. As a result, traders continue to expect the European Central Bank (ECB) to pursue a more dovish monetary policy than the Federal Reserve.
EUR/USD was falling during the Asian and early European trading sessions. Today, two US macroeconomic reports will come out and may affect the market: Durable Goods Orders at 1:30 p.m. UTC and CB Consumer Confidence at 3:00 p.m. UTC. Better-than-expected numbers might push EUR/USD down towards 1.04120. Conversely, worse-than-expected figures may help the pair to rise above 1.04520.
US Trade Tariffs May Affect the Australian Dollar
The Australian dollar (AUD/USD) lost 0.29% against the US dollar (USD) as risk-sensitive currencies weakened due to a major sell-off in US equity markets.
When in doubt, and against a spike in equity market volatility, the AUD, thanks to its liquidity, is the FX weapon of choice to express risk aversion', noted Rodrigo Catril, a senior FX strategist at NAB. In addition, US President Donald Trump threatened to impose tariffs on various goods, including copper and steel. Australia's trade and economy could be negatively impacted by tariffs because the country is the major exporter of these commodities. Fundamentally, AUD/USD remains in a bearish trend, but there are doubts about the Reserve Bank of Australia's (RBA) monetary policy outlook. Right now, investors price in about a 60% chance of a 25-basis-point rate cut by the RBA on 18 February.
Today, traders should focus on two US macroeconomic reports: Durable Goods Orders at 1:30 p.m. UTC and CB Consumer Confidence at 3:00 p.m. UTC. Better-than-expected results might push AUD/USD below the 0.62400 level. Conversely, worse-than-expected results may lift the pair above 0.62650. In addition, the Australian Bureau of Statistics will release a key inflation report at 1:30 a.m. UTC tomorrow. The report can influence interest rate expectations and investors' sentiment, causing sharp price movements in AUD/USD. The market expects the annual Consumer Price Index to drop towards 2.5%. Higher-than-expected figures will almost certainly lift AUD/USD above 0.62700, while lower-than-expected results may prolong the current bearish trend and bring the pair towards 0.62300.