On January 23rd, the gold market witnessed notable fluctuations, as gold prices retraced from a recent peak that marked the highest point in nearly three months

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This retracement has sparked considerable interest and discussion among market players.

On that day, the spot price of gold fell by 0.1%, hovering around $2750, signifying the potential end of a three-day upward trendOn Wednesday, the price had peaked at $2763.43, the highest since October 31, and on that date, it had touched a record high of $2790.15. The pullback in prices can be attributed to a multitude of factors, with the dollar's resurgence playing a pivotal roleThe U.Sdollar, being the most significant reserve currency globally, often demonstrates an inverse relationship with goldA stronger dollar typically exerts downward pressure on the price of gold, especially in dollar-denominated termsOn Thursday, the dollar gained momentum for the second consecutive day, rebounding from its monthly lows, which undoubtedly intensified the downward pressure on gold prices.

In addition to the factors linked to the dollar, the equity market's stable performance has further suppressed gold prices

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Gold is traditionally viewed as a safe-haven asset, favored by investors during times of market turmoilHowever, when the stock market performs steadily, risk appetite among investors tends to rise, leading to a reallocation of funds towards equities and other riskier assets, consequently reducing demand for goldOn that day, the stability seen in the stock market diminished gold’s appeal as a safe-haven asset, contributing significantly to the pressure on its prices.

Despite the retreat in gold prices, several factors continue to provide some support to the metalFxstreet highlighted market expectations that the Federal Reserve may cut interest rates twice this year, a prospect that limits the upward trajectory of U.STreasury yields

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The close relationship between Treasury yields and the dollar suggests that when yields are constrained, the dollar’s attractiveness diminishes, thus applying pressure on the currencyFor non-yielding assets like gold, a weaker dollar lends support to its pricesFurthermore, uncertainties surrounding the new U.Sgovernment's trade policies have also influenced gold pricesThe ambiguous direction in trade policy has added to market volatility and, in such an uncertain environment, gold's safe-haven attributes become more pronounced, helping to curb the extent of its price declinesHence, until there is confirmation that gold's upward momentum over the past month has definitively waned, investors are urged to maintain a cautious outlook.

Ajay Kedia, director at Kedia Commodities in India, presented his own outlook on the decline in gold prices

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He considered this dip to be merely a technical correction, spurred by the dollar's rebound towards the 108 level, which triggered a round of profit-takingIn financial markets, when the price of an asset surges to a certain point, investors often opt to sell and lock in profits, leading to price correctionsHowever, Kedia emphasized that the fundamental outlook for gold remains positive, suggesting that, in the long run, it still holds considerable investment value and is expected to trend upward.

In the current market climate, developments in U.Strade policy have become critical influencing factorsThe U.Sproposed to impose tariffs of about 25% on imports from Mexico and Canada starting February 1, and it has also pledged to levy tariffs on European goods, albeit without providing detailed explanations

These trade initiatives have captured market attention and sparked concernsAccording to Ilya Spivak, global macro strategist at Tastylive, the impact of U.Spolicies on gold largely hinges on whether tax cuts, deregulation, tariff adjustments, and expulsion policies exert strong inflationary pressureIf these policies result in significant inflationary pressures, the Fed's rate cuts might be constrainedIn this scenario, gold, being an inflation hedge, could face downward price pressure, as limited rate cuts would mean interest rates could remain elevated, reducing the allure of non-yielding assets like gold.

From a technical analysis standpoint, Reuters analyst Wang Tao has made projections regarding gold prices, suggesting that gold could encounter resistance around the $2759 mark, which might trigger further price corrections

Technical analysis is a methodology that employs historical price data and trading volumes to forecast future asset price movementsWang's forecast serves as a significant reference for investors looking to better navigate the volatility in gold prices.

The release of weekly jobless claims data from the U.Smay also provide additional momentum for gold pricesThis data serves as a crucial indicator of the U.Slabor market's healthAn increase in jobless claims suggests more individuals are losing jobs and seeking unemployment benefits, which could negatively impact the U.Seconomy and subsequently influence gold pricesShould jobless claims data disappoint, it may fuel recession fears in the market, thereby driving up demand for gold as a safe haven and potentially elevating its prices; conversely, if the data is robust, it might diminish gold's appeal, exerting downward pressure on prices.

Chris Turner, an analyst at ING, pointed out that a new focal point may emerge concerning international tax law

The new U.Sadministration could impose tariffs on countries attempting to implement the OECD's global minimum tax, a concern clearly important to sponsors within the tech industrySuch adjustments in international tax policy could impact the dollar favorably; if the dollar strengthens as a result, gold prices may face increased downward pressure.

Looking ahead to the week, decisions regarding interest rates by the Federal Reserve and the European Central Bank will become focal points of market attentionThe Fed and the ECB are scheduled to make their interest rate announcements on the following Wednesday and Thursday, respectivelyDecisions made by these central banks have the potential to heighten market volatility and could subsequently lend support to gold, which, as a non-yielding precious metal, is influenced by interest rate changes

The Fed is set to convene from January 28 to 29; while the U.Seconomy continues to show growth and inflation is on the decline, the inflationary pressures that might arise from the new government's proposals remain uncertainAnalysts generally expect the Fed to maintain a steady benchmark interest rate, as higher rates diminish the appeal of non-yielding assets like goldOn the ECB side, policymakers are reportedly inclined to further cut interest rates—a direction that may lead to a weakened euro, consequently strengthening the dollar and thus affecting gold pricesAdditionally, the market widely anticipates a rate hike from the Bank of Japan on Friday, which could further influence the global financial landscape and indirectly affect gold price trajectories.

Thursday’s decline in gold prices resulted from a confluence of factors, and the future direction of gold prices remains enveloped in uncertainty