Gold at new record high

Contracts for U.S. and European stocks declined, ignoring gains from Asian markets as investors assess the ongoing trade war and earnings reports from major tech companies on Wall Street. Euro Stoxx 50 contracts dropped by 0.4%, while S&P 500 contracts fell 0.5%, following significant losses for Alphabet Inc., Google’s parent company, and Advanced Micro Devices Inc. Asian shares rose for the second consecutive day, although Chinese equities declined following the country’s reopening after the Lunar New Year holidays. The yen strengthened against the dollar, and gold prices climbed to an all-time high due to heightened demand for safe-haven assets.

Asian technology stocks mirrored the upward trend of their U.S. counterparts, but investor sentiment turned more cautious regarding China, which responded shortly after the U.S. implemented a 10% tariff on all imports from the country. The initial exchanges in the latest U.S.-China trade conflict indicated that Xi Jinping is adopting a more restrained stance compared to the first term of Donald Trump.

Ten-year Treasuries and the dollar index continued to lose ground after U.S. job openings dropped in December more than expected, reaching a three-month low. Traders are now looking to the upcoming U.S. ISM services data for further indications regarding the Federal Reserve’s interest rate strategy. Activity in the services sector is anticipated to have slowed in January due to winter storms affecting much of the region and wildfires on the West Coast. However, high-frequency payroll data indicates that hiring activity remained fairly steady on a seasonally adjusted basis, according to Bloomberg Economics.

Alphabet shares decline after cloud sales fall below expectations

Alphabet Inc., the parent company of Google, reported fourth-quarter revenues that did not meet analysts’ expectations, as growth in its cloud division slowed down. This has raised concerns among investors regarding the significant investments the company is making in artificial intelligence (AI).

The company’s quarterly revenue, excluding payments to partners, totaled $81.6 billion, which was announced on Tuesday. Analysts had anticipated revenues of $82.8 billion, based on data from Bloomberg. Following this news, Alphabet’s stock dropped over 9% in after-hours trading.

Additionally, Alphabet revealed that it plans to allocate $75 billion for capital expenditures in 2025, significantly higher than the $57.9 billion that analysts had predicted. CEO Sundar Pichai stated during the earnings call with investors that this investment is “directly driving revenue” by benefiting customers.

DXY below 108.0

The US Dollar Index (DXY) has fallen below the 108.0 support level, reaching as low as 107.65, the lowest point since January 28th. This decline indicates that the upward momentum has now run out of steam. With the index currently below 108.0, there is potential for further declines, possibly toward the 107.35 support area and then to 107.0. A break below these levels would suggest a more pronounced bearish trend.

EURUSD above 1.04

Despite the euro declining to 1.0150 at the beginning of the week, it has now risen above 1.04 as if nothing happened. Currently, the euro is trading at its highest level since Friday, and the technical indicators are gradually improving. This may pave the way for further gains, potentially reaching 1.0450. If it breaks above that resistance, it could clear the way for additional increases towards 1.0490. On the downside, 1.0350 remains a key support level for now.

Gold’s journey to $3,000 is becoming realistic

Gold’s significant rise has been the highlight of the global commodities market in 2024, breaking multiple records. As we step into 2025, the metal is continuing to reach new highs and raising the pressing question of whether it can achieve the $3,000 per ounce mark.

Initially, this target seemed quite shocking and far-fetched, but now, with gold trading above $2,855 per ounce and on track for its sixth consecutive weekly gain, it appears more attainable in the first half of the year, even if prices experience a temporary slowdown.

There are three main factors contributing to gold’s attractiveness right now. First, gold seems to have become a favored asset under the new US president, characterized by a style that includes disruption, unexpected headlines, trade tensions, and bold statements. For instance, his recent comments on Gaza carry a surprising quality reminiscent of his pre-presidency style, and collectively, these circumstances could be positive for gold, as uncertainty prevails.

Secondly, central banks are continuing to acquire gold, showing no signs of hesitation despite its high trading levels, a strong US dollar, or 10-year Treasury yields hovering around 4.5%. The People’s Bank of China (PBOC) is expected to announce an increase in its gold reserves soon, and other central banks may follow suit.

Lastly, while the situation is evolving, the US Federal Reserve still seems inclined to lower interest rates. The urgency of this decision may shift as policymakers adjust to the unpredictable landscape of the current administration, especially if inflation remains persistent. However, their goal of reducing borrowing costs in the upcoming quarters remains intact.

Prepared by Nour Hammoury, Chief Market Analyst at SquaredFinancial
Nour is an investor, independent market strategist, and financial advisor. He holds a BA in Finance and Banking Science from Al-Ahliyya Amman University and a CFTe in Economics from the International Federation of Technical Analysts. He has more than 15 years of experience in forex, stocks, and global economic developments, as well as central bank policies and intermarket analysis. He appears regularly on major international TV networks, such as BBC, Al-Jazeera, Al Hurra, CNBC, and Bloomberg, holding open discussions and sharing insights and readings of the markets and trends.

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