When rising US government bond yields and the US dollar trigger a rally in gold and vice versa, it is important to consider the underlying drivers. These factors are likely rooted in geopolitical shifts and the uncertain economic environment surrounding President Trump’s trade policies. Let’s discuss these topics and make a trading plan.
The article covers the following subjects:
Major Takeaways
- Gold’s delayed reaction to labor market statistics is surprising.
- The precious metal gains strength from Donald Trump’s tariff threats.
- The XAUUSD has a safety net in the form of geopolitics.
- Short trades can be opened as long as gold is trading below $2,715.
Weekly Fundamental Forecast for Gold
Gold’s delayed reaction to the US employment statistics for December and its subsequent fall in response to Bloomberg’s insider about the phased introduction of tariffs by Donald Trump’s administration has investors puzzled. What factors is the precious metal reacting to? Has it retained its link to the US dollar and US Treasury bond yields, or is it hopelessly lost? The XAUUSD has exhibited abnormal behavior, but the asset withstood headwinds in 2024 as well.
The US labor market report is expected to have a significant impact on gold prices. The report showed employment growth of 256,000, an unemployment rate of 4.1%, and a wage increase of 4%, which led to increased Treasury yields and a reduced expectation of the Federal Reserve’s monetary expansion to 35 basis points. The futures market anticipates no federal funds rate reduction before October, reinforcing the US dollar. Despite this, the precious metal demonstrated resilience in the face of these developments, with a slight decline the following day as the strengthening of the US dollar became evident.
Gold Performance and 10-Year US Treasury Yield Trajectory
Source: Bloomberg.
According to recent reports, Donald Trump’s team is developing a phased plan to implement tariffs of 2–5% per month, harming the USD index as speculators liquidated their positions in the US currency. However, XAUUSD quotes remained stable, suggesting a potential break in the correlation with the greenback.
One explanation for this shift is the use of gold as a risk hedge against the potential impacts of Donald Trump’s tariff policies. The gradual introduction of these tariffs could potentially reduce demand for safe-haven assets, further exacerbating the situation. However, the rise in metal stocks on the Comex, driven by fears of trade wars, has resulted in a shift in investor sentiment, leading them to move their investments to the US, thereby allowing investors to buy gold in other countries and increasing demand for gold.
Comex Precious Metals Inventory
Source: Bloomberg.
Investors overlooked the fact that the imposition of unprecedented sanctions against Russian oil would, in fact, distance, rather than bring closer, the date of a peace agreement on Ukraine. The precious metal grew steadily in 2022–2024 against the backdrop of dedollarization and diversification of reserves by central banks. Only the victory of Donald Trump, who promised to put an end to the conflict in Eastern Europe, in the US presidential election forced XAUUSD bulls to flee the market.
Weekly Trading Plan for Gold
The current state of gold trading carries inherent risks. The precious metal is facing pressure from rising US Treasury yields and the US dollar. However, it has a safeguard in the form of geopolitical developments. Against this backdrop, one can keep their short positions initiated at $2,715 following the US employment statistics open. However, if the precious metal exceeds the breakeven point, it will create an opportunity to open long positions.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of XAUUSD in real time mode
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.
