Gold Drops Below $2,860: What’s Driving the Decline?
Gold extended its losing streak on Saturday, dropping over 1% and closing the week down by 3%, as investors shifted focus toward the US dollar and riskier assets.
Currently, XAU/USD is trading at $2,858, after hitting a low of $2,832 earlier in the session.
The primary driver behind this decline is the strengthening US dollar, fueled by renewed trade tensions and hawkish Federal Reserve expectations. US President Donald Trump announced a 25% tariff on Mexican and Canadian imports, set to take effect on March 4, alongside an additional 10% tariff on Chinese imports. These aggressive trade policies have reinforced demand for the US dollar, making gold less attractive as a safe-haven asset.
Additionally, the Federal Reserve’s preferred inflation gauge, the Core PCE Price Index, showed a 0.3% month-over-month increase in January. While this was in line with expectations, the year-over-year figure slowed from 2.8% to 2.6%, signaling continued progress toward the Fed’s 2% target. This reinforced speculation that the Fed could begin cutting rates in June, with traders now pricing in 70 basis points of rate cuts for 2025.
Key Factors Pressuring Gold:
US Dollar Strength: Trade tensions and solid economic data drive demand for USD.
Hawkish Fed Outlook: Markets expect a delayed rate cut, keeping gold under pressure.
Risk-On Sentiment: Investors shift focus toward stocks and higher-yield assets.
Trade Tensions and Economic Concerns
The intensifying US-China trade war has further dampened gold’s appeal. With China, Canada, and Mexico expected to retaliate, global markets face heightened uncertainty. Investors are closely monitoring Beijing’s response at the upcoming National People’s Congress, where key economic policies will be outlined.
Meanwhile, signs of slowing US economic growth could add another layer of volatility. The Atlanta Fed GDPNow estimate recently revised Q1 2025 GDP growth to -1.5%, a sharp drop from the previous 2.3% expansion forecast. While lower growth typically supports gold, the current risk-on sentiment and strong USD have kept prices suppressed.
Upcoming Economic Events to Watch:
March 3: ISM Manufacturing PMI (Forecast: 50.6)
March 5: ADP Non-Farm Employment Change (144K Expected)
March 7: US Non-Farm Payrolls (156K Expected), Fed Chair Powell Speaks
With key employment data and Federal Reserve comments lined up, gold traders should prepare for increased volatility in the coming week.
Gold Price Outlook: Key Technical Levels
Gold is currently trading at $2,858, staging a slight recovery after touching $2,835. However, technical indicators suggest that momentum remains bearish, with the 50-period EMA ($2,902) acting as dynamic resistance.
A retracement toward key Fibonacci levels could offer fresh selling opportunities:
Resistance: $2,867 (38.2% Fib), $2,877 (50% Fib)
Support: $2,855 (0.236 Fib), $2,835 (Previous Low)
Downside Target: A break below $2,835 could send gold toward $2,822–$2,808
While short-term corrective moves toward the $2,867–$2,887 zone are possible, the broader trend remains bearish unless gold reclaims $2,902.
What’s Next for Gold?
Bearish Bias: Price action remains weak below the 50 EMA.
Key Support to Watch: Break below $2,835 could trigger further selling.
Volatility Ahead: Major US economic data will impact price movement.
For now, gold faces stiff headwinds from a stronger dollar, Fed policy uncertainty, and trade war fears. However, any signs of economic slowdown or increased geopolitical risk could provide short-term relief for gold bulls.
Summary Bullet Points:
Gold Drops 3% Weekly: Trading at $2,858 after hitting $2,832 low.
US Dollar Strength Pressures Gold: Trade tensions boost demand for USD.
Fed Rate Cut Expectations Shift: Markets eye first cut in June 2025.
Gold’s Technical Outlook: Resistance at $2,877, support at $2,835.
Major Events Ahead: US Non-Farm Payrolls, ISM PMI, Fed Chair Powell’s Speech.
Gold remains vulnerable to further declines unless risk sentiment shifts, making next week’s economic releases critical for future price action.
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