Gold prices continued their decline on Tuesday, extending a five-day losing streak and approaching the critical $2,630 support level.
The precious metal struggles to stabilise, despite growing risk aversion tied to Middle East tensions and concerns over China's economic recovery.
Gold's recent performance has been undermined by renewed fears over China’s economic prospects.
After a week-long holiday break, Chinese traders returned to markets on Tuesday with no new stimulus announcements, despite earlier optimism.
The National Development and Reform Commission (NDRC) indicated growing pressure on China’s economy, which intensified risk aversion across Asia.
As the world’s largest gold consumer, China’s economic troubles have a direct impact on the metal's demand, contributing to the ongoing bearish pressure on gold prices.
However, gold's drop has been tempered by a pullback in the U.S. dollar and U.S. Treasury yields following dovish remarks from Federal Reserve officials.
St. Louis Fed President Alberto Musalem commented on Monday that further gradual rate cuts could be appropriate, although he refrained from predicting the exact size or timing. This has diminished market expectations of a sharp 50 basis point rate cut, with the CME Group's FedWatch Tool now suggesting an 86% chance of a more modest 25 basis point cut.
Musalem’s remarks helped weaken the dollar, offering some relief to gold prices. With US Treasury yields also edging lower, this combination has provided a degree of support for the precious metal, even as it remains under pressure.
Looking ahead, markets will be paying close attention to speeches from Atlanta Fed President Raphael Bostic and Fed Vice Chairman Philip Jefferson for further clues on US monetary policy. In the absence of significant economic data from the US, these speeches could provide further insight into the Fed's next moves.
Additionally, escalating tensions in the Middle East continue to capture global attention. Over the weekend, Iran-backed Hezbollah launched rockets into Israel, targeting Haifa. Israel's military has responded with increasing operations in Lebanon, raising concerns about the broader impact on global markets and risk sentiment.