Gold (XAU) Price Forecast: Is the Rally Over as Yields and Dollar Surge?

Gold Prices Retreat as Dollar and Yields Surge – Is the Rally Over?

Gold prices fell on Monday, weighed down by surging U.S. Treasury yields and a stronger U.S. Dollar, following robust labor market data. Spot gold slipped from its December highs after encountering resistance at $2,693.40, a key Fibonacci retracement level. Last week’s rally now faces renewed selling pressure, with the next significant support levels at $2,663.51 and $2,667.03. A break below these could jeopardize the intermediate uptrend.

At 11:25 GMT, XAU/USD is trading $2678.09, down $11.29 or -0.42%.

What’s Driving the Dollar and Yields Higher?

December’s nonfarm payrolls report stunned markets with a 256,000 increase, far surpassing the forecast of 155,000. Unemployment dipped to 4.1%, reinforcing confidence in U.S. economic resilience and curbing expectations for imminent Federal Reserve rate cuts.

Treasury yields soared in response, with the 10-year yield climbing to 4.794% and the 2-year yield hitting 4.415%.

A stronger dollar, buoyed by the data, reached a two-year high. This rally in yields and the greenback has dampened gold’s appeal, as the metal becomes pricier for foreign buyers and less attractive compared to interest-bearing assets.

Will Key Economic Data Shift the Fed’s Stance?

Markets are now focused on this week’s crucial economic reports, including the Consumer Price Index (CPI), Producer Price Index (PPI), and retail sales data. These releases will be closely scrutinized for signs of inflationary pressures that could influence the Federal Reserve’s policy path.

Speeches from Fed officials, including New York Fed President John Williams, are also anticipated to provide clarity. With the labor market remaining strong and inflation risks persistent, traders are questioning whether the Fed’s “higher for longer” rate stance could be reinforced.

Can Safe-Haven Demand Rescue Gold?

While rising yields and the dollar are near-term headwinds for gold, safe-haven demand remains a potential counterforce. Market uncertainties, including elevated energy prices and geopolitical risks, could support gold as a hedge against inflation and volatility.

A weaker-than-expected CPI print or signs of economic slowing may help gold regain its footing. For now, traders should remain cautious, monitoring critical support levels and the outcome of this week’s economic releases. Elevated volatility and rapid shifts in sentiment are likely to dominate gold’s short-term outlook.

More Information in our Economic Calendar.