XAU/USD Dips but Shines Weekly as US Dollar Holds Firm and Geopolitical Heat Rises

Gold prices dipped on Friday, with XAU/USD trading at $3,019, down 0.81%, marking a second consecutive day of retreat as traders locked in profits ahead of the weekend. Despite this pullback, the precious metal is on track to secure weekly gains, buoyed by a resilient US Dollar, with the US Dollar Index (DXY) climbing 0.24% to 104.05. The market’s cautious mood persists, though US equities have begun to recover some ground after earlier losses.

The precious metal remains under pressure as rising US Treasury yields, including a one basis-point increase in the 10-year T-note yield to 4.246% and a near 2-basis-point rise in real yields to 1.918%, weigh on its appeal. Meanwhile, the absence of fresh catalysts has kept traders fixated on President Donald Trump’s trade policies as the primary market driver, overshadowing even the latest remarks from Federal Reserve officials.

Fed policymakers have struck a measured tone, signaling no urgency to lower interest rates amid uncertainties tied to Trump’s tariffs. New York Fed President John Williams emphasized that the 2% inflation target remains non-negotiable and described the current modestly restrictive policy as fitting, while Chicago Fed President Austan Goolsbee suggested patience is warranted in times of uncertainity.

These comments echo Fed Chair Jerome Powell’s stance that rate cuts are not imminent, reflecting confidence in the existing rate levels despite economic unknowns. The Fed’s updated projections this week forecast two rate cuts in 2025, holding the fed funds rate steady at 3.9%, though they also revised GDP growth below 2%, hinting at a tariff-induced slowdown, alongside higher projections for inflation and unemployment.

Adding to market tension, geopolitical risks flared as Israel escalated military operations in Gaza, abandoning a two-month ceasefire to pressure Hamas for the release of hostages. This development has heightened uncertainty, though it has yet to significantly sway gold prices. In the broader financial landscape, money markets have priced in 72 basis points of Fed easing for 2025, contributing to a dip in US Treasury yields and the dollar earlier this week. For now, gold bulls appear to be pausing after a strong rally, with the metal’s defensive posture intact amid a firming Greenback and shifting economic expectations.