– Rising U.S. yields
Lagos — Gold (XAU/USD) is facing increasing pressure as the U.S. dollar continues to hold onto its recent gains, trading near $3016, supported by strong economic data that strengthens expectations for the Federal Reserve to maintain a tight monetary policy for a longer period.
Despite the precious metal holding steady above the psychological $3,000 level, global market sentiment, driven by optimism about the potential easing of U.S. tariffs and a possible peace agreement between Russia and Ukraine, is limiting gold’s appeal as a safe-haven asset.
Additionally, China’s economic stimulus plans aimed at boosting consumption may increase investor appetite for riskier assets, weakening demand for gold and potentially pushing it lower if these positive market sentiments continue.
Gold prices have seen volatile movements recently, with the precious metal managing to end a three-day losing streak, mainly supported by the drop in the U.S. dollar. In my opinion, the decline in the dollar’s value is one of the key factors supporting gold prices at the moment, especially given concerns about the U.S. economy.
While there is some optimism from hopes of tariff reductions between the U.S. and several of its trading partners, strong expectations remain for continued support for gold in the short term, especially with forecasts indicating the Federal Reserve may resume interest rate cuts.
From my perspective, gold is seen as a haven for investors during times of economic and financial volatility. Therefore, as the U.S. dollar remains weak and indications emerge that the Federal Reserve may soon resume its interest rate-cutting cycle, demand for the yellow metal is increasing.
These expectations significantly support gold prices, especially in light of growing concerns about the U.S. economy’s slowdown due to the tariffs imposed by President Trump. While gold may face some challenges due to improved global risk sentiment, the U.S. economic data to be released in the coming days could be crucial in determining gold’s price trajectory.
This comes, in my opinion, at a time when there are intense global efforts to ease trade tensions, including hopes for trade deals between the U.S. and China, as well as cautious optimism about China’s economic stimulus.
These factors may reduce the demand for gold as a haven. However, despite this, the short-term outlook for gold remains positive, especially if we consider the continued concerns about U.S. economic growth, which could prompt the Federal Reserve to take further easing measures.
I believe that although the U.S. dollar has retreated after hitting its highest level in three weeks, the continued rise in U.S. Treasury yields is putting pressure on gold. This rise in yields, along with the strength of the dollar, could limit potential gains for gold. However, I think that gold’s gains may not be significantly capped, especially if concerns about global trade and geopolitical tensions continue to affect financial markets. In these circumstances, any pullback in gold prices could present a buying opportunity for investors betting on the continuation of global economic instability.
Opinions on the impact of U.S. tariffs on the global economy vary. While some believe these tariffs may slow U.S. economic growth, there is also optimism about negotiations to ease these tariffs, which could improve sentiment and reduce investor demand for gold. However, if the trade war continues or escalates, gold could benefit from increased economic uncertainty. Therefore, I view the Federal Reserve’s monetary policy outlook as a crucial factor in determining gold market trends in the coming period.
Looking at recent U.S. economic data, some suggest the Federal Reserve may remain in a monitoring stance for a longer period, with the possibility of future interest rate cuts. Therefore, I expect gold to remain in an upward trend, as investors prefer commodities that do not rely on yields amid weak real yields. However, markets remain alert for new data from the U.S., such as consumer confidence indices and others, which could significantly impact the dollar’s movements and, consequently, gold prices.
For investors in the gold markets, the upcoming period could be pivotal in determining market trends. If expectations of interest rate cuts by the Federal Reserve persist, gold could see an increase in value, especially if concerns about a U.S. economic slowdown continue. Global trade tensions may also continue to support demand for gold, potentially leading to sustained price increases in the short term. On the other hand, if risk sentiment improves and concerns about the global economy ease, we may see some corrections in gold prices.
Ultimately, the future movement of gold prices will depend on multiple factors, ranging from U.S. monetary policy to global economic developments and geopolitical tensions. However, given the current situation, the outlook remains favourable for gold in the near term, as the yellow metal remains one of the best options for investors seeking a haven amid global economic turmoil.
*Rania Gule, Senior Market Analyst at XS.com – MENA
