Trump's policies are driving the dollar higher
The price of gold (XAU/USD) falls to its lowest level since September, flirting with the mark 2 550 $. This decline takes place in a context where the American dollar, stimulated by expectations surrounding Donald Trump's economic policies, reached an annual high. The promises of tax reductions and increased customs tariffs support the idea of accelerated economic growth, strengthening the value of the greenback.
US bond yields on the rise
US government bond yields continue to rise, reducing the appeal of gold, a yield-free asset. Inflation, fueled by the prospect of higher customs tariffs, could force the Federal Reserve to slow down its cycle of rate cuts. This dynamic is holding back investors, who are looking for more lucrative opportunities in the bond market.
Also read: The fall in gold worries… can it continue?
Persistent inflation: obstacle to Fed policies
The Consumer Price Index (CPI) report released Wednesday reveals an increase of 0,2 % in October, bringing annual inflation to 2,6 %. The core CPI, excluding volatile sectors, shows an annual increase of 3,3 %signaling stubborn inflation. This situation complicates the task of the Fed, which could hesitate to continue its rate cuts. Analysts estimate more than 80 % the likelihood of another cut at the December meeting, according to CME Group's FedWatch tool.
Technical analysis: gold vulnerable to new thresholds
The passage below the key threshold of 2 600 $corresponding to the Fibonacci retracement of 38,2 %opens the way to a further decline. The next critical support lies between 2 542 $ et 2 538 $area marked by the 100-day SMA and the Fibonacci retracement of 50 %. A breakdown of this bottom could expose gold to the psychological level of 2 500 $.
On the other hand, an attempt at recovery would face immediate resistance around 2 580 $before aiming 2 600 $. Exceeding this last barrier could trigger a rebound towards the zone of 2 630 $even 2 660 $ if market optimism materializes.
What you need to know about the Fed's monetary policies
What is the role of the Fed?
The Federal Reserve regulates the U.S. economy by adjusting interest rates. When inflation exceeds the target 2 %it tightens its monetary policy, which strengthens the American dollar. Conversely, low rates stimulate the economy but weaken the currency.
What is quantitative easing (QE)?
In times of crisis, the Fed may adopt QE to inject liquidity into the financial system. This strategy, although beneficial in the short term, tends to weaken the dollar.
What about quantitative tightening (QT)?
QT, the opposite of QE, consists of withdrawing liquidity by ceasing to repurchase maturing bonds. This policy generally supports the value of the dollar.
The evolution of the gold market remains closely linked to American policy and the decisions of the Fed. Investors are closely monitoring upcoming economic announcements, in a context where uncertainty dominates.
