Market Analysis: Gold remains bearish but there is still hope

The Trump effect that is driving the dollar higher is causing problems dollar-denominated commodities. Both Gold (XAU/USD) and Silver (XAG/USD) are down heavily since the start of November, having retraced 7% and 12% respectively, whilst copper and oil have started to face increase selling pressure in the past few days. 

Months of dollar weakness coupled with concerns about the outlook of the US economy and the expectation of fierce rate cuts saw gold repeatedly break to new highs. But the new rhetoric, which sees a resilient economy and a resurgence in inflationary pressures given Trump’s tax and tariff laws, has started to play against the precious metal. 

It is important to note that just because markets now expect less rate cuts from the Federal Reserve over the coming year it doesn’t mean that gold is a hard sell. A lot of what has been happening in the market these past few days can be seen as a technical correction as the election uncertainty disappears and traders feel more comfortable moving away from safe havens like gold. That said, a more hawkish Fed does limit some of the upside in gold, as a higher terminal rate weighs on its return as a non-yielding asset. 

Aside from monetary policy, there is still plenty for investors to be concerned about. Ongoing political and military conflict and weakening consumer demand in China and Europe are just a few. Not to mention the fact that Trump’s term in office could cause further friction in international relations, which could affect US and global consumers. 

But, for now, the short-term bias has turned lower. The extent of the pullback over the past 10 days has meant XAU/USD is on track for the worst monthly performance since 2021, currently at -5.3% only 12 days in. Aside from June where there was a pause in the bullish rally and a rocky start to the year in January, the drive in gold has been consistently bullish in 2024. 

One thing that has held up throughout the year is that any pullback has ended and reversed prior to, or at, the previous reversal’s low, but this time price has dropped below $2,600, which is where the pullback from early October was reversed. It is still early to call this a change in momentum, but traders should keep an eye out for any further weakness in XAU/USD, as this could change the narrative. There are plenty of areas of support up ahead as the bullish rally in 2024 has seen various levels where the momentum has been tested, offering a good opportunity for new buyers to come in this time around. For now, as long as gold remains above $2,500 then there is likely to be further interest from buyers to come in at more favourable levels, whilst also allowing the RSI to run into oversold territory. But, with price having been above the 100-day and 200-day SMAs consistently for the past 12 months, a drop below $2,537 (100-day SMA) could be a big sign of caution for investors. A further drop towards $2,392 (200-day SMA) would be a very bad sign.

Gold (XAU/USD) daily chart

Past performance is not a reliable indicator of future results.