During Asian trading hours on Monday, spot gold experienced a significant sell-off under profit-taking pressure, extending losses from the previous two trading sessions. It is currently trading near $4,555 per ounce, down approximately 6% for the day. As of 13:54, it had earlier plunged as much as 7.5% to a three-week low of $4,497.39 per ounce, following a nearly 10% drop last Friday. The news of Kevin Warsh being nominated as the next Federal Reserve Chair has alleviated market concerns about the Fed's independence, with signs of U.S. political stability emerging, prompting gold to extend its decline after hitting a record high last week.
On another front, support from geopolitical risks, including the easing of U.S.-Iran tensions, is partially receding, which could diminish the appeal of traditional safe-haven assets like gold. Traders will be closely monitoring the progress of U.S.-Iran negotiations and further clarification on Warsh's policy direction.
However, gold purchases by major central banks are expected to limit the downside for gold prices to some extent. The U.S. Institute for Supply Management (ISM) Manufacturing Purchasing Managers' Index (PMI) data is scheduled for release later on Monday, with the January figure forecast to improve to 48.3 from December's 47.9. A surprisingly weaker-than-expected report could weigh on the U.S. dollar and boost dollar-denominated commodity prices, as a weaker greenback makes gold priced in dollars more attractive.
Gold prices remain under sustained pressure following a historic plunge. Over the weekend, former President Donald Trump stated that the U.S. was "on track" to reach a deal with Iran. Concurrently, Iran's Supreme Leader Ayatollah Ali Khamenei warned that any attack on his country would trigger a regional conflict, while the U.S. continues to amass forces nearby.
Emma Wall, Chief Investment Strategist at Hargreaves Lansdown, commented, "Investors and global central banks... have adopted gold as their preferred reserve currency, believing it can shield them from U.S. policy dependence." She added, "Some nations, having witnessed the threat of Russian assets being frozen by global forces supporting Ukraine, subsequently view gold as a more attractive, neutral reserve asset."
Former President Donald Trump has nominated Kevin Warsh to succeed Jerome Powell as the next Chair of the Federal Reserve, with his term set to begin in May 2026.
Data from the U.S. Bureau of Labor Statistics last Friday showed that the Producer Price Index (PPI) rose 3.0% year-on-year in December, exceeding the expectation of 2.7%. On a monthly basis, the December PPI increased by 0.5%, surpassing the market consensus of 0.2% and the previous month's reading of 0.2%.
The stronger-than-expected U.S. producer price inflation may further reinforce the rationale for the Federal Reserve to keep interest rates unchanged, as policymakers closely monitor inflation trends.
Markets are pricing in an approximately 87% probability that rates will be held within the current 3.50%-3.75% range, with the first 25-basis-point rate cut potentially occurring in June.
Although gold is in a downtrend for the day, it faces relatively minor resistance for long-term appreciation.
On the daily chart, gold maintains a firm position above the key 100-day Moving Average (MA) at $4,226.31, providing strong support. The Bollinger Bands are expanding, suggesting the current strong trend is likely to continue.
Despite the bullish trend, the 14-day Relative Strength Index (RSI) shows a significant deviation from the midline, indicating the potential for further temporary pullbacks in the market.
On the upside, if gold can form a bullish candlestick and sustain a break above the intraday high of $4,884.44, it could potentially target the psychological $5,000 level again, with further resistance seen at the January 27 high of $5,190.20.
On the downside, initial support for gold lies at the January 16 low of $4,536, followed by support near the 50-day MA around $4,480. A key support level is located near the 100-day Moving Average at $4,226.31.
As of 14:01 Beijing time, spot gold was quoted at $4,562.50 per ounce.
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