Gold price retreats below $2,750, over 1%, amid stock market sell-off
- Gold declined due to profit-taking amid AI sector overvaluation fears.
- Market sell-off driven by interest in Chinese AI firm, DeepSeek, dampens gold's appeal despite lower bond yields.
- Global economic worries grow as China's PMI data reveals contractions in services and manufacturing.
Gold price slid over 1% late on Monday during the North American session, sparked by a broader market sell-off spurred by interest in Chinese AI company DeepSeek. The yellow metal has failed to gain traction as US Treasury bond yields plunge, though the Greenback pared some of its losses, yet below the 108.00 figure. The XAU/USD trades at $2,738 after hitting a daily high of $2,772
Jim Wyckoff, analyst at Kitco, mentioned that traders booking profits could be the main reason behind Gold's drop. The launch of DeepSeek's language model, cheaper than those of US companies' models, spooked investors, who seemed to assess that stocks linked to the AI industry might be overvalued.
According to Bloomberg “The sudden emergence of DeepSeek calls into question the underpinnings of the rally that’s added $15 trillion to the value of Nasdaq 100 Index companies since the end of 2022.”
In the meantime, the US 10-year Treasury bond yield plunges almost nine basis points (bps) to 4.528%. Nevertheless, Bullion failed to capitalize on falling yields.
The National Bureau of Statistics (NBS) in China revealed that Services and Manufacturing PMIs entered contractionary territory, hinting that the global economy may slow down.
Data-wise, the US economic docket features the Chicago Fed National Activity Index for December, which exited negative territory, an indication that the economy is improving.
This week, the US economic docket will feature US Durable Goods Orders, the Federal Reserve’s monetary policy meeting, Gross Domestic Product (GDP) figures for the last quarter of 2024, jobs data, and the release of the Fed’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) Price Index.
Daily digest market movers: Market turmoil weighed on Gold, US yields and USD
- Gold price rose ignoring the advance of real yields. Measured by the 10-year Treasury Inflation-Protected Securities (TIPS), yield sits at 2.19%, down four basis points (bps).
- Bullion failed to capitalize on the overall weakness of the Greenback, as the US Dollar Index (DXY), which tracks the performance of the American currency against six others, fell 0.12% to 107.33.
- Market participants are pricing 54 basis points of interest rate cuts by the Fed. The Fed is expected to cut rates toward the end of 2025, with the first reduction occurring in June.
XAU/USD technical outlook: Gold stumbles below $2,750
Gold price retraces and consolidates as buyers take a breather before pushing XAU/USD prices higher to challenge the record high of $2,790. In the near term, XAU/USD pullbacks below $2,750, which could pave the way to test $2,700. Once surpassed, the next stop will be the confluence of the 50 and 100-day Simple Moving Averages (SMAs) at around $2,655-$2,660. On further weakness, the $2,600 could act like a magnet.
Conversely, if buyers lift the golden metal past $2,750, look for a test of the record higher at $2,790. Above this lies $2,800, followed by key psychological levels exposed at $2,850 and $2,900.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.