“From last week’s record high, Gold (XAU/USD) had thus fallen by around $140. Selling pressure was caused by a significantly stronger US dollar and a sharp rise in US bond yields. In previous weeks, neither of these factors had been a hindrance for Gold. However, the extent of the USD appreciation and the rise in yields were apparently too strong this time to be ignored by Gold.”
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“In addition, Gold had built up considerable correction potential due to the strong price increase in the previous weeks, which was not based on a change in interest rate expectations. Some market participants apparently took this as an opportunity to close out positions. This can be seen, for example, from the outflows from Gold ETFs that have been observed for a few days.”
“However, we do not expect the Gold price weakness to last for long, as yesterday’s recovery to just over $2,700 shows. The Fed’s interest rate cut by 25 basis points yesterday and the prospect of further rate cuts continue to favour Gold. In addition, Trump’s policies are likely to increase inflation risks, which is why Gold is likely to remain in demand as a hedge against inflation.”
