Gold (XAU/USD) is trading in negative territory near $2,680 during the early Asian session on Monday, experiencing a downtick as a result of a stronger US Dollar (USD). The precious metal is being pressured by market expectations following Donald Trump’s victory, which has fueled concerns that the US Federal Reserve (Fed) may slow its pace of rate cuts, supporting the USD and weighing on USD-denominated gold.
Stronger US Dollar and Fed Rate Outlook
The US Dollar Index (DXY), which tracks the USD against a basket of six major world currencies, has extended its rise to around 105.00, marking a four-month high. The stronger USD has become a key factor impacting gold prices, as a stronger dollar typically makes gold more expensive for foreign buyers, dampening demand. Trump’s victory has raised doubts about whether the Fed will reduce rates as aggressively as initially expected, contributing to the dollar’s upward momentum.
Matthew Jones, a precious metals analyst at Solomon Global, noted that this dollar rally, coupled with rising yields, is putting pressure on gold. As real interest rates rise, the appeal of gold as a safe-haven asset diminishes in the short term, which is reflected in the current pullback in gold prices. However, Jones also pointed out that from a longer-term perspective, gold remains a strong investment due to its macroeconomic appeal.
US Economic Data Supports USD
The US economic data released on Friday further supported the greenback. The University of Michigan’s preliminary reading of the US Consumer Sentiment Index rose to 73.0 in November, up from 70.5 in October and above the market consensus of 71.0. This upbeat sentiment has contributed to the continued strength of the USD and, consequently, the downward pressure on gold prices.
Geopolitical Risks Provide Some Support to Gold
Despite the pressure from a stronger USD, geopolitical tensions, particularly in the Middle East, are providing some support for gold. The ongoing conflict in the region, including the Israeli army’s expansion of its ground invasion in southern Lebanon, continues to contribute to global economic uncertainty. These factors are likely to maintain gold’s appeal as a safe-haven asset in the longer term, limiting the metal’s downside.
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