[PRO Tips] Gold Market Under Short-Term Pressure, Safe-Haven Demand and Central Bank Buying Support Long-Term Upside Potential

This week, the gold market faced overall pressure. Spot gold closed at $2,633.49 on Friday, down 0.48% for the day, and recording a slight weekly decline of 0.1%. Market activity was sparse, with trading subdued as the year-end holiday season approaches. A rise in U.S. Treasury yields emerged as the primary source of downward pressure on gold prices. Meanwhile, the U.S. Dollar Index rose for the fourth consecutive week, and the 10-year U.S. Treasury yield hovered near an eight-month high, further weakening gold’s appeal.

On Friday, spot gold dropped to as low as $2,619.33 during intraday trading. Despite facing short-term pressure, gold has posted a 28% gain year-to-date, having reached a record high of $2,790.15 in late October. Overall, the outlook for gold in 2025 remains optimistic, driven by escalating global geopolitical tensions and continued gold purchases by central banks.

Market analysts noted that gold demonstrated resilience this week despite the low liquidity of the holiday market. Even as U.S. Treasury yields continued to rise, gold held firm above the $2,600 level. Analyst James Hyerczyk observed that escalating tensions in Ukraine and the Middle East have highlighted gold’s safe-haven appeal. Israeli airstrikes on Houthi targets in Yemen and the ongoing Russia-Ukraine conflict provided support for gold prices.

Technically, however, gold’s short-term trend leans bearish. Hyerczyk pointed out that the key support level for next week is $2,607; a break below this level could lead to further declines. Conversely, gold must break above $2,665.65 to re-establish an upward trend. For now, gold is likely to remain range-bound under the pressure of high yields and a strong dollar.

Looking Ahead

The market generally believes that gold’s trajectory will be influenced by multiple factors. The election of U.S. President Donald Trump has introduced uncertainty regarding future economic policies. Proposed tax cuts and tariff policies could impact the Federal Reserve’s monetary policy, thereby affecting the gold market. Renowned market analyst Fawad Razaqzada stated that while a strong dollar and high bond yields suppress gold demand, gold could still reach $3,000/oz in 2025.

Razaqzada identified expectations of global central bank rate cuts and geopolitical risks as the primary drivers of gold’s surge in 2024. While the Federal Reserve’s rate-cutting path may remain constrained, global inflation concerns and central banks’ gold-buying spree provide strong support for gold prices. Even though demand in Asian markets has softened, robust safe-haven demand, coupled with uncertainties in the global macroeconomic and geopolitical landscape, continues to benefit gold.

At the same time, the market is closely monitoring recent remarks by Trump. His expressed interest in Canada, the Panama Canal, and Greenland on social media has raised concerns about further complications in global geopolitical dynamics. Analysts noted that while these comments are still in early stages, they have heightened uncertainty about future policy directions, boosting safe-haven demand.

Hyerczyk also highlighted the Federal Reserve’s future monetary policy as a key focal point for the market. While the Fed has recently suggested that the pace of rate cuts may slow, economic data will remain a critical variable. Next week, the market will closely watch U.S. pending home sales and unemployment claims data, which could have a direct impact on gold prices.

U.S. Labor Market and Its Impact on Gold

It’s worth noting that the latest U.S. employment data has been mixed. While initial jobless claims remained stable, continuing unemployment claims climbed to a one-year high, signaling a potential slowdown in the labor market. Jeffrey Roach, Chief Economist at LPL Financial, suggested that this could indicate a cooling U.S. labor market, which may influence the Federal Reserve’s monetary policy in the long term, indirectly benefiting gold.

Leading institutions believe that although gold faces short-term pressure, it still holds long-term bullish potential. The market broadly expects that even if gold prices remain constrained by high yields in the first half of 2025, safe-haven demand could drive prices higher in the second half. Razaqzada noted that despite weak demand in Asia, sustained central bank gold purchases, inflationary pressures, and potential economic recession risks will provide strong support for gold in the coming months.

Global Economic Factors

In addition, the market will keep an eye on economic developments in other regions. Both the European Central Bank (ECB) and the Bank of England (BoE) have recently indicated that despite inflationary pressures, monetary policy will remain cautious. This could continue to weigh on the euro and the pound, further strengthening the dollar, thereby exerting downward pressure on gold prices. However, global political uncertainty remains a key supportive factor for gold.

Conclusion

In summary, while the gold market faces short-term pressures from rising yields and a strong dollar, geopolitical risks and central bank gold-buying trends will continue to support gold prices in the medium to long term. The market will closely monitor the upcoming economic data and Trump’s policy developments to assess the future trajectory of gold.