According to Kitco - with two consecutive weeks of increase, gold prices have brought much optimism to investors in the context of many economic fluctuations. Despite facing a strong USD and forecasts of tightening monetary policy, this precious metal still maintains its role as a safe haven asset.
However, as the new trading week begins, gold prices are under pressure as traders reassess economic data. Jim Wyckoff, senior analyst at Kitco, said that the decline in gold prices was mainly due to short-term corrections and profit-taking by futures traders after recent good gains.
Besides, the recovery of the USD index to its highest level in more than two years and the increase in US Treasury bond yields were also external factors that negatively affected the market in the new trading week.
Gold continues to be affected by the Fed's monetary policy
This week, the focus is on key US economic reports, including the non-farm payrolls (NFP), producer price index (PPI) and consumer price index (CPI). Last Friday's NFP report showed 256,000 new jobs were created, far exceeding the forecast of 164,000. The unemployment rate fell to 4.1%, lower than the forecast of 4.2%.
These figures have caused the market to reassess the outlook for interest rates. The probability of a rate cut by the Federal Reserve in January is now at an all-time low. Investors now believe that the Fed will only cut rates twice this year, if at all, which is weighing on gold prices.
The Fed’s monetary policy and gold’s movements in the coming days will depend heavily on inflation reports. The CPI is due out on Wednesday, with a forecast of a 2.9% increase year-on-year. The PPI is due out earlier on Tuesday, with a forecast of a 0.4% increase.
If CPI reaches 3% or higher, the market could become volatile. High inflation figures will make the market believe that the Fed has no reason to adjust interest rates, keeping them high for a long time, which is not good for gold prices.
The impact of Donald Trump's return
One important piece of news that will impact the precious metals market is that former President Donald Trump is expected to return to the White House next week, which could bring major changes to US monetary policy.
Mr Trump has repeatedly criticized high interest rates. Many experts believe his return could bring a more dovish policy, creating conditions for gold prices to rise.
If the Trump administration pushes for lower interest rates or accommodative policies, gold will become more attractive because it does not yield like bonds or savings. However, political developments and economic data in the coming months will be the deciding factors.
Gold prices continue to assert their role as a safe haven asset, overcoming the pressure of a strong USD and a volatile economic environment. However, this week's inflation reports and uncertainty in US economic policy will determine the future trend of this precious metal.
Many investors believe that the return of Donald Trump could add positive signals to gold prices. However, inflation and monetary policy from the Fed may still be challenges for this precious metal in the coming months.
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