Gold prices have made a strong start to 2025, with the precious metal climbing as high as $2,635 on Thursday, marking a notable rebound from the $2,600 level. Gold buyers are pushing ahead with confidence despite a broader rise in the US Dollar (USD) as a result of heightened investor caution.
The USD’s strength stems from a risk-averse market sentiment, spurred by growing uncertainty surrounding the policies of US President-elect Donald Trump and the next steps from the US Federal Reserve (Fed). Following the Fed’s hawkish stance in December, market participants are betting on a pause in the central bank’s interest rate cuts this month.
In spite of the USD’s upward momentum, the gold market is being buoyed by a pause in the recovery of US Treasury bond yields. Investors are flocking to gold as a traditional safe-haven asset, driven by fears surrounding China’s slowing economic growth and geopolitical risks, particularly in the Middle East.
Data released on Thursday showed that China’s factory activity growth slowed in December. The Caixin Manufacturing PMI unexpectedly dropped to 50.5, down from 51.5 in November and missing expectations of 51.7. This slowdown is raising concerns about China’s economic outlook as the country faces mounting pressures.
Gold also benefits from increased expectations that China will take proactive steps to stimulate economic growth in 2025. As the world’s largest consumer of gold, any policy support in China is seen as a positive for the yellow metal.
While the US Dollar remains a dominant factor in the gold market, risk trends will continue to play a major role in determining the direction of gold prices. The market is likely to see heightened volatility due to the thin liquidity in holiday-trading conditions. However, the return of US traders after the New Year holiday could further reinforce the USD’s upward trend, potentially dampening gold’s bullish momentum.
Market participants are also eyeing the upcoming release of weekly US Jobless Claims data, which could introduce some volatility into the market as traders look ahead to another potentially eventful year.
Technically, gold is challenging its 21-day Simple Moving Average (SMA) at $2,635, with hopes of pushing towards the psychological $2,650 level. A breakthrough above this level could target the 50-day SMA at $2,655, with further upside potential toward the $2,700 mark.
However, if gold fails to maintain its upward trajectory, the immediate support level lies at the 100-day SMA at $2,624. A daily close below this support would signal the end of the current recovery, potentially triggering a downtrend toward the weekly low of $2,596. Should the market continue to slide, the December 19 low of $2,583 and the November 15 low of $2,555 could come under threat.
As the market navigates these fluctuations, gold traders will be closely watching the interplay between the USD, risk trends, and key economic data to assess the next steps for the precious metal in 2025.
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