The Future of Gold Prices (XAUUSD) Under Pressure from the Dollar Amid Volatile Expectations, Trade Tensions, and Uncertain Monetary Policies

January 27, 2025 (Investorideas.com Newswire) Investorideas.com (www.investorideas.com), a go-to platform for big investing ideas releases market commentary from Rania Gule, Senior Market Analyst at XS.com - MENA.

The price of gold (XAU/USD) dropped to around $2760 on Monday, reflecting renewed pressure on the precious metal due to the strengthening demand for the US dollar (USD). This decline comes in a volatile economic and political environment, where geopolitical factors and monetary policies significantly influence market movements.

I believe that this drop in gold's price mainly reflects the strength of the US dollar, which benefits from the uncertainty surrounding President Donald Trump's trade policies. However, the downside for gold may be limited due to prevailing market caution and uncertainty about the long-term effects of recent trade measures.

Today, the US dollar strengthened notably with the escalation of trade tensions, particularly after President Trump imposed retaliatory tariffs on Colombia. This move, which includes an emergency 25% tariff on all Colombian goods entering the US, with the possibility of raising it to 50% within a week, reflects an aggressive trade policy that could exacerbate global tensions.

Therefore, I believe these actions increase demand for the dollar as a safe-haven asset, putting additional pressure on dollar-denominated commodities, including gold. However, gold could benefit in the medium term from this uncertainty if trade tensions lead to a global economic slowdown or a decline in investor confidence.

On the other hand, the US Federal Reserve is expected to keep interest rates unchanged at its meeting this week. This expectation reflects a prevailing view in the markets that the US central bank will maintain a balanced monetary policy for the time being. However, the Federal Open Market Committee (FOMC) press conference will be closely watched, as Fed officials may provide hints about the future path of interest rates. I believe any hawkish signals from the Fed could strengthen the dollar and add further pressure on gold, while any hints of monetary easing could support the yellow metal.

Last week, President Trump called for an immediate interest rate cut during the World Economic Forum, which led to a decline in the US dollar to its lowest levels in over a month and supported gold prices. These statements reflect the US administration's desire for a more accommodative monetary policy to stimulate economic growth. 

Therefore, I believe these calls could create uncertainty around the Fed's policy, which may impact gold's movements in the short term. If the central bank responds to this political pressure, we might see further support for gold's price. However, if the Fed insists on maintaining its independence and keeps a relatively hawkish monetary stance, gold may remain under pressure.

Based on these factors, I expect gold prices to remain within a narrow trading range in the coming days, with the possibility of testing new support levels if the dollar continues to strengthen. However, any escalation in trade tensions or a decline in investor confidence could push gold back onto an upward trajectory.

Therefore, I see gold continuing to benefit from geopolitical uncertainty and conflicting monetary policies, making it an attractive option for investors seeking a haven. In the medium term, if trade tensions continue to worsen or if economic data shows a slowdown in global growth, we may see gold prices rise towards $2800 or slightly higher. However, any improvement in market sentiment or a reduction in tensions could limit gold's gains and maintain downward pressure.

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