Gold prices continued to fall on Tuesday as a stronger dollar weighed on sentiments among investors.
A stronger dollar makes commodities priced in the greenback more expensive for overseas buyers, limiting demand.
Also, gold was further pressured by easing of US political uncertainty, which had fuelled a rally in the yellow metal prices in recent weeks.
Experts said perceptions that President-elect Donald Trump’s economic policies will be positive for the dollar was fuelling the uptrend in the greenback.
Trump has proposed to increase tariffs on all imported goods to the US, especially from China.
This is likely to increase prices and inflation.
“Whilst this alone is not US Dollar positive, it will make the US Federal Reserve (Fed) slow down the rate at which it cuts interest rates,” Joaquin Monfort, editor at Fxstreet, said in a report.
“Relatively elevated interest rates attract greater foreign capital inflows, which is, in turn, positive for USD.
Trump’s penchant for lower taxes is also likely to stoke inflation further, compounding the effect,” Monfort said.
At the time of writing, the December gold contract on COMEX was $2,614.65 per ounce, down 0.1% from the previous close.
Prices had fallen to a more than one-month low of $2,609.65 per ounce earlier in the day.
Competition from bitcoin
Competition from bitcoin is further likely to weigh on prices of gold.
Bitcoin hit a new all-time high on Monday, above $84,000 due to expectations that Trump may ease regulations governing crypto currencies.
Stocks could also seem attractive initially if Trump brings down corporation tax and loosens regulation.
According to experts, gold prices are likely to suffer as a consequence of portfolio managers pivoting into these riskier assets.
“The perception that Trump will be able to bring an end to the Ukraine-Russia war, which he boasted he could settle “in one day – 24 hours,” may also be reducing safe-haven flows into Gold,” Fxstreet.com said in a report.
Focus on US CPI data
Investors are likely to take further cues from the release of the US consumer price index data later this week.
Traders will be eager to see whether inflation in the US is cooling in line with the Federal Reserve’s expectations.
The latest remarks from the Fed Chair suggested that the central bank would be less likely to be aggressive with rate cuts.
Also, he had said that policy easing would end sooner than expected.
These factors are expected to keep gold’s safe-haven appeal subdued.
The Fed had cut interest rates by 25 basis points at its latest policy meeting last week.
The decision was in line with market’s expectations.
According to the CME FedWatch tool, traders have priced in a 66.9% probability of the US central bank cutting rates by a further 25 basis points at the December meeting.
Technical forecast for gold price
Gold is currently in a short-term downtrend as traders have resumed sell-off from last week.
Experts at Fxstreet.com said that a break in prices below the $2,600 per ounce level would accelerate a further fall towards $2,540 per ounce.
Gold price is not oversold according to the Relative Strength Index (RSI), so more downside is possible, according to Monfort.
Montfort added:
The precious metal remains in an uptrend on a medium and long-term basis, with a material risk of a reversal higher in line with these broader up cycles at some point in time.
On the flip side, $2,632-$2,635 per ounce is the new resistance for COMEX gold prices. If prices breach that level then the yellow metal could rise towards $2,659-$2,660 per ounce.
Other precious metals
Among other precious metals, silver and palladium were down sharply from their recent highs.
Silver prices on COMEX were below the crucial level of $31 per ounce, while palladium futures on the New York Mercantile Exchange fell below $1,000 per ounce.
Prior to this, the prices of these precious metals, which are mainly used in industry, had risen due to the brightening economic outlook in China.
“Under Trump, new tariffs could impede foreign trade and thus weigh on the growth and demand for these three precious metals,” Carsten Fritsch, commodity analyst at Commerzbank AG, said in a report.
Since silver plays a key role in the decarbonisation of the economy, a slowdown of this process under Trump could dampen demand for the metal. Silver is a component in photovoltaic cells, which is used in electric vehicles.
Fritsch said:
Platinum and palladium, on the other hand, would benefit from this, as they are used in catalytic converters for cars with internal combustion engines. At least in the US, no significant move away from the combustion engine is expected in the coming years.
At the time of writing, the COMEX silver price was down 0.7% at $30.40 per ounce, while palladium futures on the New York Mercantile Exchange was $969.78 per ounce, down 1.4%.
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