Why Has Gold Dropped Below $2,400 after All-Time Peak?

Gold hits a peak of $2,447 before falling 1.90% to $2,398. Fears over Trump’s chances of winning the election and China’s economic expansion strengthen the US dollar. US Treasury yields rise, with the 10-year note at 4.233%; the US Dollar Index rises to 104.34, up 0.18%.

The statistics released this week confirmed the Fed’s claims that its dual mandate has become more balanced. The data also showed a slowdown in industrial production, a mixed reading for retail sales, and an increase in the number of Americans applying for unemployment benefits.

The Fed is expected to loosen policy by 50 basis points (bps) towards the end of the year, up from 50 last Friday, according to the December 2024 fed funds rate futures contract.

Investor attention will be on statements made by Fed policymakers: During the New York session, New York Fed President John Williams and Atlanta Fed President Raphael Bostic are set to speak.

Friday sees a more than 1.50% decline in the price of gold, which then stays at $2,400 as traders book profits for the weekend. The yellow metal, which was trading at about the $2,300 level and had reached an all-time high of $2,483, might end the week with losses of about 1%. The XAU/USD pair trades at $2,399, having risen as high as $2,447.

There are multiple reasons why trader sentiment is fluctuating. China’s economy is expanding slower than anticipated, and speculation that former President Donald Trump may win the elections on November 5 has strengthened the dollar. The US Dollar Index (DXY) predicts that the dollar will conclude the week higher than where it started.

In addition, there were rumors that US President Joe Biden could withdraw from the contest because prominent Democrats claimed that surveys taken after Trump’s murder indicate he cannot be defeated.

Federal Reserve officials kept becoming a little more dovish in the interim, but they were unable to weaken the US dollar. The Fed shouldn’t lower interest rates until late 2024, the International Monetary Fund (IMF) stated on Thursday.

The US Dollar Index, which compares the value of the dollar to six other currencies, is currently up 0.18% at 104.34. Around the yield curve, US Treasury bond yields are also increasing. The 10-year Treasury note yield, for example, is now 4.233%, an increase of more than three basis points (bps).

Weaker than anticipated US Consumer Price Index (CPI) data helped push gold prices beyond $2,400 as US Treasury bond yields fell in response to the growing probability that the Fed will lower rates.

Technical Factors:

The drop in gold prices indicates that traders are still taking profits following the 8% rally that has occurred since June 27. While the Relative Strength Index (RSI) is still positive, momentum is currently in favor of sellers in the short term. The RSI has dropped vertically, but not far enough to breach the 50-neutral line.

Thus, the psychological 50-day Simple Moving Average (SMA) at $2,357 would be the second level of support for XAU/USD, after the high of July 5 at $2,392. The 100-day SMA at $2,312 would be the next support level, at $2,350. If not, XAU/USD may test the record high of $2,483 before reaching $2,500 if it maintains above $2,400 and reclaims $2,450.