Forex Analysis & Reviews: 08.01.2025

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InstaForex Loprais Team - Official participant of the Dakar rally

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InstaForex Loprais Team - Official participant of the Dakar rally

08.01.2025 08:56 AM

Gold Holds Its Ground

Gold has shown resilience despite speculation surrounding Donald Trump's trade tariffs and a series of strong U.S. economic data. The precious metal found support amid uncertainty regarding the policies of the U.S. president-elect, as well as an increase in the volume of gold reserves held by the People's Bank of China (PBoC), which rose from 72.96 million to 73.29 million ounces in December. In 2024, the PBoC acquired 44 tons of gold, contributing significantly to the 27% rally in XAU/USD last year. After a six-month hiatus, the PBoC resumed its gold operations in November and December.

Central bank purchases, the Federal Reserve's monetary easing, and geopolitical risks were the primary factors driving the upward movement of XAU/USD last year. However, some of these factors have weakened, leading Goldman Sachs to revise its 2025 gold forecast from $3,000 to $2,910 per ounce. The bank suggests that a pause in the Fed's monetary easing cycle will result in further capital outflows from specialized exchange-traded funds (ETFs), a trend that has persisted for the past four consecutive years.

Capital Flows in Gold ETFs

Declining interest in gold among retail investors is offset by increased demand from central banks, which allows Goldman Sachs to maintain a positive outlook on gold's future. The bank predicts that central banks will purchase an average of 39 tons of gold per month in 2025.

In contrast, speculators are less optimistic about gold compared to Goldman Sachs. They have decreased their net long positions in gold to six-month lows, anticipating a prolonged pause in the Fed's monetary easing cycle. Additionally, the growth in U.S. service sector activity—from 52.1 to 54.1 in December—and the rise in job openings from 7.8 million to 8.1 million in November have increased the chances of keeping the federal funds rate at 4.5% through the end of the year, raising the probability from 12% to 17%.

The futures market anticipates one act of monetary easing in 2025, with the chances of a second cut falling from 70% to 35%. This pushes the yield on 10-year U.S. Treasury bonds higher and supports the dollar. Since gold is priced in the U.S. dollar, its correlation with the USD index is typically inverse.

Gold and U.S. Dollar Dynamics

Gold has shown resilience against the strengthening U.S. dollar, driven by speculation surrounding Donald Trump's trade tariffs and the decline in U.S. stock indices, which have increased its appeal as a safe-haven asset. If market reactions continue to be influenced by the U.S. president's unpredictable decisions, a significant drop in the XAU/USD exchange rate is unlikely.

On the daily chart, gold is currently consolidating within the Splash and Shelf pattern based on the 1-2-3 formation. Prices are near fair value at $2,645 per ounce. If bullish sentiment persists, the likelihood of a rise toward $2,710 increases. Conversely, if buyers fail to maintain their position, the price of gold could decline to $2,585 or lower.

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*Disclaimer: The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.