Gold braces for two-way risks as Trump-Xi meeting looms
- Gold consolidates the previous decline, remaining vulnerable early Thursday.
- US Dollar preserves gains amid elevated Treasury yields, ahead of the critical Trump-Xi meeting,
- Gold broke the consolidation to the downside; daily RSI is in bearish territory.
Gold is consolidating the previous decline in Thursday’s Asian trades, at weekly lows below $4,300, awaiting the highly anticipated meeting between US President Donald Trump and his Chinese counterpart Xi Jinping later in the day.
Gold at the mercy of Oil prices, Treasury yields
Gold failed to sustain its recent range trade and broke the consolidation to the downside on Wednesday, coming under intense pressure as Oil prices rebounded firmly and revived inflation fears, sending US Treasury yields through the roof yet again. Higher yields increase the opportunity cost of holding non-yielding assets such as Gold.
Uncertainty over any potential end to the Middle East conflict heightened after Tehran's leader vowed to never surrender following a warning by US President Donald Trump that he could "annihilate" Iran.
Additionally, lingering risks of attacks by Iran-backed Yemeni Houthi militia on Saudi Arabia remain a big concern. These factors lifted Oil prices from multi-week lows and drove them back toward the $100 level.
Surging Treasury bond yields lifted the US Dollar (USD), a double-whammy for the bright metal, amid rising hawkish expectations about the Federal Reserve’s (Fed) interest rate outlook. Recent speeches from Fed policymakers delivered the hawkish message, reinforcing a view of more rate hikes or higher-for-longer.
Strategists at Scotiabank highlight that “markets remain focused on the outlook for tighter Fed monetary policy,” with “rising yields and more supportive spreads” described as “key to the Dollar’s strength.” They note that “the DXY’s rise looks fully supported by wider front-end spreads,” and point to their “DXY fair value model based purely on 2Y yield spreads,” which “puts the DXY’s estimated equilibrium at 101 this morning versus a spot index of 100.85.” In addition to the yield-based valuation, Scotiabank adds that “technical drivers point to the DXY appreciating towards the low-101 area in the near-term,” reinforcing the view that current Dollar gains are fundamentally and technically well anchored.
Against this backdrop, Gold traders are treading water early Thursday, digesting the overnight developments, while bracing for volatility after the Trump-Xi summit.
Gold seems to be pausing its downside for now, finding respite from US Treasury Secretary Scott Bessent’s announcement that the US-China trade truce will be extended till January 10, adding that there could be a larger economic package agreed upon by January.
In the meantime, Oil price-driven broader market sentiment and US Treasury yields could determine Gold price action.
Gold price technical analysis: Daily chart
In the daily chart, XAU/USD trades at $4,286.99, extending a pullback below all its key moving averages and keeping a bearish near-term bias. The 21-day simple moving average (SMA) at $4,371.89 sits well above price, while the 50-day and 100-day SMAs at $4,312.48 and $4,309.05 cap the immediate topside, reinforcing a corrective tone below the longer-term 200-day SMA at $4,541.69. Momentum is subdued, with the Relative Strength Index (RSI) at 44.52 hinting at fading bullish pressure rather than outright oversold conditions.
On the topside, initial resistance is seen in the tight cluster formed by the 100-day SMA at $4,309.05 and the 50-day SMA at $4,312.48, ahead of the 21-day SMA at $4,371.89; a daily close above these levels would be needed to ease the current downside bias, with stronger resistance emerging at the 200-day SMA near $4,541.69. On the downside, support is located around the former trend-line area, with the break level at $4,000.03 followed by the origin of the line at $3,990.07, where buyers could attempt to slow the correction if bearish pressure persists.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
Author
Dhwani Mehta
FXStreet
Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.
