U.S. Treasury yields have also risen in response to anticipation of fiscal policy under Trump that could keep interest rates high. The Fed recently cut rates by 25 basis points, and while traders are currently expecting another cut in December, high Treasury yields reflect skepticism about an accommodative long-term policy, especially if Trump’s economic plans boost inflation. Higher yields create additional headwinds for gold because they increase the opportunity cost of holding non-yielding assets.
Traders are keeping a close eye on key U.S. economic data this week, including the October Consumer Price Index (CPI) on Wednesday, the Producer Price Index (PPI) on Thursday and retail sales data on Friday. These reports will provide insight into inflation trends and economic strength, potentially influencing the Fed’s policy path. In addition, comments from Fed Chairman Jerome Powell and other Federal Reserve officials this week could further clarify the Fed’s position on interest rates, increasing market sensitivity.
Physical demand could support gold if prices close to key levels
UBS analyst Giovanni Staunovo suggests gold could find support between $2,500 and $2,600 an ounce as prices approach these levels, with a rebound in physical demand helping to offset recent selling pressure. The potential for increased buying interest among jewelers and central banks could help stabilize prices in the short term, although market sentiment remains cautious due to broader economic factors.
Short-term forecast: bearish outlook
Given the current bearish momentum, gold prices appear vulnerable to further declines in the short term. The strong dollar, rising government bond yields and an attractive stock market continue to draw capital away from gold.
If gold falls below $2,600 without significant buying interest, a retest of support around $2,540 could occur. Overall, the near-term outlook for gold remains bearish unless there is a shift in dollar strength or economic data that challenges inflation expectations.