Despite the USD seeing such strong upside momentum throughout Q4 and into the New Year, gold has shown remarkable resilience, steadily climbing back to $2700. This underscores the metal’s renewed safe-haven appeal, which appears to outweigh its non-yielding nature and has been a key driver of bullish momentum.
Several headwinds have recently emerged for gold. December’s blockbuster US non-farm payrolls and stubborn inflation have reinforced expectations that the Federal Reserve will hold off on rate cuts until October. Meanwhile, the 10-year US Treasury yield has surged to 4.80%, with real rates pushing into 2.35% – both levels not seen since November 2023. These developments increase the opportunity cost of holding gold, and limiting its upside.
However, safe-haven demand is proving to be a formidable counterforce. Geopolitical and economic risks are at the forefront, from heightened US sanctions on Russia’s energy sector to unexpected events like the Los Angeles wildfires. As Trump’s inauguration nears, uncertainty around his administration’s policies, US-China tariff negotiations, and potential Middle East tensions is further supporting gold as a hedge against volatility. Meanwhile, the PBoC has increased gold reserves for two consecutive months, aiming to offset trade pressures and stabilize the RMB. As the world’s largest gold buyer, this ongoing accumulation provides solid support for prices.
Looking ahead, strong safe-haven demand is likely to keep gold on an upward path. This week, key drivers include US CPI data on Wednesday and retail sales on Thursday. If core CPI exceeds the expected 3.3% year-on-year and retail sales rise above the forecasted 0.6%, market expectations for the Fed to slow down its rate cuts will grow, which could strengthen the dollar and push the 10-year Treasury yield above 4.80%, thus applying downward pressure on gold. However, it’s important to note that the uncertainty surrounding Trump’s actions on tariff policies and potential countermeasures from China following his inauguration next week could heighten market volatility and provide support for gold prices.
For this week, the bulls want to see a push through $2700 and the Nov/Dec range highs of $2725, while support is seen at $2,614.81 (6 Jan low) and $2600.