Gold faces second weekly loss amid strong dollar
Gold prices fluctuated during trading on Friday, with the yellow metal falling to around $4,652 per ounce at the start of the Asian session, continuing its losses from the previous session.
However, gold managed to rebound later towards $4,850 per ounce with a slight improvement in risk appetite. Despite this partial recovery, gold is still on track to record a second consecutive weekly loss amid continued selling pressure and cautious sentiment dominating the markets.
Why is gold falling now?
This decline comes after a series of record highs for gold in January, which were driven by several key factors, most notably escalating geopolitical risks, growing concerns about the independence of US monetary policy, and a wave of strong speculative buying in China.
However, the picture has changed somewhat in recent days, as easing geopolitical tensions have reduced gold's appeal as a safe haven. Statements by Iranian and US officials confirming talks in Oman have prompted investors to monitor developments cautiously, weakening demand for the precious metal as a hedge.
Impact of speculation and dollar strength
During the previous rally, speculative buying in gold and silver played a major role in pushing prices to historic highs, but this type of trading makes the market more vulnerable to sharp reversals when sentiment changes.
Gold also came under additional pressure after the US dollar rebounded, supported by Kevin Warsh's nomination to chair the Federal Reserve, who is seen as a more hawkish choice in terms of monetary policy.
A rise in the dollar usually weakens gold prices, given the inverse relationship between the two.
US labor market data and its impact on gold
On the economic data front, the latest figures showed a marked deterioration in the US labor market, with job losses in January reaching 108,400, the highest monthly level since 2009.
Initial jobless claims rose to 231,000, while private sector employment data (ADP) came in below expectations. Official government job data is scheduled to be released next Wednesday instead of Friday due to the partial US government shutdown. This weak data reinforces expectations that the Federal Reserve may begin cutting interest rates later this year, with increasing speculation that the first move will be in June.
What does this mean for the future of gold?
If labor market data continues to be weak, it could support gold prices in the medium term, as the yellow metal typically benefits from a low interest rate environment.
However, the short-term trend remains contingent on geopolitical developments, the performance of the dollar, and statements from Federal Reserve policymakers.
