Gold prices fell on Monday, as the strong US dollar weighed on the yellow metal. Investors focused on the first Federal Reserve meeting of 2025, as they waited for signals on the path of interest rates in the coming months. Many analysts believe that the influence of the dollar was the main factor behind gold’s weakness during this period, although some suggest that the downtrend in the precious metal may not be deep. This, at least, is due to safe haven flows that may support gold in the coming period.
According to Yep Jun Rong, market strategist at IG, “The US dollar may be the main reason for gold’s weakness at the moment. However, the current movement indicates that the downtrend in the yellow metal is still limited, perhaps thanks to safe haven flows.” This statement shows that markets may remain influenced by the dollar in the short term.
Geopolitical tensions and the impact of Fed moves
In another context, geopolitical tensions contributed to boosting demand for gold as a safe haven. The United States and Colombia have reached a deal to avoid a trade war after Colombia agreed to accept military planes carrying deported migrants.
Investors typically consider gold a safe haven against geopolitical turmoil and inflation. It performs well in low-interest-rate environments that reduce the appeal of other assets. Federal Reserve policymakers plan to hold rates steady at the January 28-29 meeting, pausing the rate-cutting cycle that started in September.
“The market will likely focus on how the Fed will react to President Trump’s comments, which called for continued rate cuts,” said Jigar Trivedi, senior analyst at Reliance Securities. The expectation reflects the keen interest in how the Fed will respond to external pressures.
Gold continues to be pressured by Fed data
According to data released in December, Fed officials indicate that inflation will continue to move slowly but steadily towards 2%, with unemployment rates continuing to decline and economic growth continuing. These expectations directly affect the Fed’s directions in interest rate decisions. Despite these statements, gold is still facing major challenges at the moment, especially with the rise of the US dollar.
In the week ending January 21, speculators on the COMEX exchange increased their net long positions in gold by 21,864 contracts to reach 234,358 contracts. This number indicates investors’ desire to buy XAU as a hedge against potential risks, despite the pressures resulting from the strength of the dollar.
Gold and Market Performance at the Beginning of the Week
At the settlement of trading on Friday, gold prices rose by 0.5%, reflecting a decline in consumer confidence in the United States for the first time in 6 months. XAU futures for February delivery recorded gains of 1.1% over the week, as the yellow metal continued its upward trend for the fourth consecutive week. However, at the beginning of the current week, gold declined significantly under pressure from the dollar.
Spot gold fell 0.7% to $2,751.71 an ounce, after trading near record highs on Friday. While US gold futures fell 0.8% to $2,756.30, the pressure from a stronger dollar continued, making gold more expensive for holders of other currencies.
Silver and Palladium: Other Metals in the Market
While gold prices retreated, other metals also saw significant declines. Spot silver, for example, fell 1.3% to $30.20 an ounce, while palladium fell 1.8% to $969.83. Platinum fell 0.9% to $940.40. These moves point to a state of tension in precious metals markets, with all metals under pressure from a stronger dollar.
Long-Term Gold Outlook
Despite the current declines, the long-term outlook for XAU remains positive. Central banks continue to build their gold reserves, which enhances the precious metal’s reputation as an alternative reserve asset. According to Kotak Securities, demand for XAU remains strong, which reinforces the bullion’s long-term outlook.
As global economic and political shifts continue, analysts believe that XAU will remain a key part of investors’ portfolios. However, some experts suggest that the market may face some pressure in the short-term, especially if the dollar continues to strengthen.
Technical Analysis: Has Gold Peaked?
Technically, some analysts believe that XAU has reached an overbought point. The Relative Strength Index (RSI) on the daily chart has reached high levels, indicating that the market may witness a correction soon. Gold is expected to face resistance at $2,790, which is close to its all-time high.
If gold can break above this level, it could see a new record high. However, if prices decline, XAU could face support at $2,721, which is close to the double top in November and December. If this support is broken, gold could see further selling.
Gold Future: Will the Uptrend Continue?
Despite the current challenges, gold remains a focus for investors looking for stable assets amid economic and geopolitical tensions. Factors such as the US Federal Reserve’s decisions and global economic indicators could trigger further volatility in gold prices.
At the same time, the precious metal remains a focus for central banks, which reinforces expectations that gold will continue to be in demand as a safe haven in uncertain times.
