Gold price reverses after a dip to $2,700; gains bullish momentum amid mixed fundamental cues
After reaching a one-month high on Thursday, the gold market is experiencing an intraday reversal.
The unmoving yellow metal is being hurt by bets on a weaker dovish Fed and increasing US bond yields. Support for the XAU/USD comes from speculations on a December Fed rate cut, concerns about a trade war, and geopolitical tensions.
Although it is still below the best level in almost a month reached earlier this Thursday, the gold price (XAU/USD) has recovered from an Asian session slump and is trading at levels below $2,700. A third straight interest rate cut from the Federal Reserve (Fed) is expected next week, according to US consumer inflation figures released on Wednesday. In addition to this, the continued geopolitical uncertainty caused by the war between Russia and Ukraine, problems in the Middle East, and fears of trade tariffs imposed by US President-elect Donald Trump all work together to boost the value of the safe-haven precious metal.
As a result of indications that the Fed will take a cautious approach to reducing interest rates in response to indicators that inflation is nearing its 2% target, investors now appear to be convinced of this. As a result, yields on US Treasury bonds continue to climb, which is good news for the US dollar (USD) and limits the upside for the price of gold, which isn’t yielding. However, considering the fundamental backdrop outlined earlier, it is possible to view every correctional fall as a chance to purchase. The US Producer Price Index (PPI) is now being watched by traders as a potential new catalyst.
In December, the Federal Reserve is expected to slash interest rates again, which has led some investors to buy gold at a discount. Following Wednesday’s release of US consumer inflation numbers, which were basically unchanged, the market is bracing for another rate cut by the Federal Reserve at next week’s policy meeting.
The headline Consumer Price Index up 0.3% in November, the biggest gain since April, according to the US Bureau of Labor Statistics (BLS). The annual rate of increase was slightly higher at 2.7% from 2.6% in October. The core gauge, which does not include energy and food price fluctuations, rose 0.3% in the reported month and 3.3% year-over-year, according to further facts found.
The CME Group’s FedWatch Tool showed that the probability of the Federal Reserve cutting interest rates by another 25 basis points on December 18 increased to above 98%, which sent the price of gold soaring to levels not seen in over a month on Thursday.
In anticipation of US President-elect Donald Trump’s policies potentially increasing inflationary pressures and compelling the Federal Reserve to halt its rate-cutting cycle, the benchmark yield has risen to a two-week high.
Thanks to this, the US Dollar is able to hold onto its recent gains and reach a new monthly high. The combination of this with the current risk-on market sentiment leads to profit-taking around the unmoving yellow metal.
As the situation between Russia and Ukraine continues to escalate and crises rage throughout the Middle East, the premium for geopolitical risk is still relevant. Worries over a trade war should also keep the XAU/USD from falling too far.
North American traders are now waiting for Thursday’s US economic docket, which includes the US Producer Price Index and the typical Weekly Initial Jobless Claims data, for some motivation later in the afternoon.
Nevertheless, all eyes will be on next week’s FOMC monetary policy meeting, which is expected to have a significant impact on the non-yielding commodity’s path.
Before putting new wagers, gold price bulls might wait for prices to break out of the $2,720-2,722 range.
After briefly becoming overbought, the Relative Strength Index (RSI) on hourly charts has begun to decline, according to technical analysis. Furthermore, daily chart oscillators have just begun to show bullish momentum, which bodes well for the possibility of dip-buying around the Gold price.
Therefore, the $2,675-2,674 level, which is close to the overnight swing low, might continue to provide support for any additional decline below the $2,700 mark. However, additional losses could be possible if sellers continue to push prices below the $2,658-2,656 confluence, which is formed by the 4-hour chart’s 50- and 200-period Simple Moving Averages (SMAs).
Conversely, the $2,726 region, which was the Asian session high, now appears to be an immediate hurdle. If Gold price breaks through this level, it may try to target the $2,748-2,750 supply zone, which is beyond the $2,735 barrier. With some intermediate resistance in the $2,775 zone, and a persistent strength beyond the latter, the stage is set to challenge the all-time peak, which was touched in October around the $2,800 neighborhood.
