Gold (XAU/USD) lost more than 0.70% on Friday as traders took profits as, over the past two weeks, data in the US showed that the labor market is not as weak as expected. Therefore, traders are becoming skeptical that the Federal Reserve (Fed) may make two cuts, as indicated by the swaps markets. At the time of writing XAU/USD is trading at $4,580.
Bullion declines as resilient US data, easing geopolitical risks prompt traders to cut aggressive Fed easing bets
The market mood is turning negative after US President Donald Trump shocked the market as he seems reluctant to nominate National Economic Council Director Kevin Hassett for the post of Fed Chairman. “If you want to know the truth, I really want to keep you where you are,” Trump told Hassett during an event at the White House.
In the headlines, the US dollar surged while gold prices fell to $4,560 before returning to current price levels. PolyMarket reported that the favorite to become the next Fed chair is Kevin Wersh, as his chances have increased from about 40% to 60%.
Meanwhile, geopolitical risks continued to ease as reports emerged that Israeli Prime Minister Benjamin Netanyahu had asked Trump to halt attacks on Iran. However, according to AXIOS, in a second call, Netanyahu asked Trump to pause military action to give Israel more time to prepare for possible Iranian retaliation. Additionally, US officials said military action would not be planned if Tehran resumed killing protesters.
In terms of data, US industrial production rose 0.4% in December, beating estimates for a 0.1% decline, the Federal Reserve revealed.
Fed officials led by Governor Michelle Bowman and Boston Fed President Susan Collins crossed the threshold. It is noteworthy that the policy makers will start their blackout period on Saturday.
US data coming next week
The US schedule will include housing data, initial jobless claims, final reading of GDP for Q3 2025, the Fed’s preferred inflation gauge, core personal consumption expenditure (PCE) price index, flash PMI and consumer sentiment.
Daily Digest Market Movers: Bullion set for lowest weekly gain as dollar recovers
- The US dollar index (DXY), which tracks the US currency’s performance against six peers, was up 0.03% at 99.38. US Treasury yields rising after the Hassett headline, with 10-year T-note yields rising nearly five basis points to 4.219%.
- US economic data showed a mixed inflation picture, with consumer prices stagnating while producer prices soared. On an annual basis, headline CPI stood at 2.7% in December, virtually unchanged from November, while PPI rose to 3% from 2.8% the previous month, highlighting long-running upward cost pressures.
- At the same time, the labor market showed signs of resilience. Last Friday’s nonfarm payrolls report was solid despite missing forecasts, while the unemployment rate fell to 4.4%, below the Fed’s 4.5% estimate. Reinforcing that strength, initial jobless claims fell from 207K to 198K, pointing to fewer Americans applying for unemployment benefits.
- Fed Governor Michelle Bowman said the central bank should not stop its easing cycle and cut rates again given labor market risks. Boston Fed President Susan Collins praised the central bank’s independence, calling it “a central bank that, while being accountable, has the independence necessary to make difficult decisions that may be unpopular in the short term.”
- Given the backdrop, traders downplayed the chances of further easing by the Federal Reserve. Prime market terminal data shows that 43 basis points of easing is expected by the end of 2026.
Technical Analysis: Gold price below $4,600, eyes $4,550
Gold consolidated below $4,600 after hitting a four-day low of $4,537, but managed to surpass $4,550. The Relative Strength Index (RSI) shows a change from bullish to neutral momentum, but the bears seem to be gathering strength. If the RSI clears its neutral line, XAU/USD could challenge its latest cycle low of $4,407 set on January 8.
Conversely, if bullion clears $4,600, buyers can look forward to challenging the all-time high (ATH) of $4,643 before targeting $4,700.
Sona FAQ
Gold has played an important role in human history as it has been widely used as a store of value and medium of exchange. Currently, apart from its luster and use for jewellery, the precious metal is widely viewed as a safe-haven asset, meaning it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and falling currencies because it is not dependent on any specific issuer or government.
Central banks are the largest holders of gold. In their aim to support their currencies in turbulent times, central banks diversify their reserves and purchase gold to improve the perceived strength of the economy and currency. High gold reserves can be a source of confidence for a country’s solvency. Central banks added 1,136 tonnes of gold, worth about $70 billion, to their reserves in 2022, according to World Gold Council data. This is the highest annual purchase since records began. Central banks of emerging economies like China, India and Türkiye are rapidly increasing their gold reserves.
Gold has an inverse relationship with the US dollar and US Treasuries, which are both major reserve and safe-haven assets. When the dollar depreciates, gold rises, helping investors and central banks diversify their assets in turbulent times. Gold is also inversely correlated with risky assets. Stock market rallies weaken the price of gold, while selling in riskier markets benefits the precious metal.
The price may increase due to a variety of factors. Gold’s safe-haven status could cause its price to rise sharply due to geopolitical instability or fears of a deep recession. As a yield-low asset, gold tends to rise with low interest rates, while higher costs of money generally weigh on the yellow metal. Still, most of the moves depend on how the US dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong dollar keeps the price of gold in check, while a weak dollar is likely to push gold prices higher.
