- Gold price rises, staying above $2,700, ignoring high US yields
- US CPI data confirms ongoing disinflation, reinforcing expectations of a Federal Reserve rate cut next week.
- The market anticipates a possible rate cut, with swaps pricing a probability of 92%, now focusing on the upcoming PPI data and jobless claims.
Gold prices continued their upward trend on Wednesday after the publication of inflation figures in the United States (US). Expectations that the Federal Reserve (Fed) would cut interest rates next week were reaffirmed as the disinflation process evolves, albeit at a slower pace. XAU/USD is trading at $2,711, posting gains of 0.40%.
The US Consumer Price Index (CPI) held firm in November, with headline and underlying numbers in line with economists’ monthly and annual estimates, the US Bureau of Labor Statistics (BLS) revealed. .
US Treasury yields fell, with the 10-year note’s coupon falling to a low of 4.201% before recovering to 4.24%, up one basis point. The US Dollar Index (DXY), which measures the performance of the US currency against a basket of six other currencies, is up 0.29% at 106.68.
Following the data, the swap market had priced a 92% probability for a 25 basis point (bps) rate cut by the Federal Reserve. This would reduce the federal funds rate to 4.25%-4.50% at the December 17-18 meeting.
Analysts at Goldman Sachs noted that China’s central bank “could even increase demand for gold during periods of local currency weakness to increase confidence in its currency.”
Now that the CPI numbers are in the rearview mirror, investors’ focus will shift to the release of the Producer Price Index (PPI) and initial jobless claims numbers for the week ending December 7.
Daily Market Summary: Gold Price Rises Ignoring High US Yields
- Gold prices advanced as US real yields rose two basis points to 1.958%.
- The US Bureau of Labor Statistics (BLS) revealed that the headline CPI was 0.3% month-on-month, one tenth higher, but in line with estimates. Core CPI was unchanged at 0.3% mom, in line with October and Wall Street projections.
- In the twelve months to November, the CPI rose from 2.6% to 2.7%, while the core CPI was unchanged compared to October, as projected by consensus at 3.3%.
- Data from the Chicago Board of Trade, via the December federal funds rate futures contract, shows that investors estimate a 24 bps easing by the Fed by the end of 2024.
Technical Outlook: Gold Price Resumes Uptrend, Targets $2,721
Gold’s bullish trend continues with prices surpassing $2,700, although the Bullion remains below the November 25 peak of $2,721.
Momentum remains bullish, as shown by the Relative Strength Index (RSI). That being said, XAU/USD remains bullishly biased.
The Bullion’s first resistance would be $2,721. With more strength, the next stop would be $2,750, followed by the all-time high of $2,790.
Conversely, if XAU/USD falls below the 50-day SMA of $2,685, the next support would be $2,650. Once broken, the next support would be $2,600, followed by an ascending support trend line and the 100-day SMA in the $2,580 to $2,591 area.
Gold FAQs
Gold has played a fundamental role in human history, as it has been widely used as a store of value and medium of exchange. Today, apart from its brilliance and use for jewelry, the precious metal is considered a safe-haven asset, meaning it is considered a good investment in turbulent times. Gold is also considered a hedge against inflation and currency depreciation, since it does not depend on any specific issuer or government.
Central banks are the largest holders of Gold. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and purchase Gold to improve the perception of strength of the economy and currency. High Gold reserves can be a source of confidence for the solvency of a country. Central banks added 1,136 tons of gold worth about $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the largest annual purchase since records exist. Central banks in emerging economies such as China, India and Türkiye are rapidly increasing their gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are the main reserve and safe haven assets. When the Dollar depreciates, the price of Gold tends to rise, allowing investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken the price of Gold, while sell-offs in riskier markets tend to favor the precious metal.
The price of Gold can move due to a wide range of factors. Geopolitical instability or fear of a deep recession can cause the price of Gold to rise rapidly due to its status as a safe haven asset. As a non-yielding asset, the price of Gold tends to rise when interest rates fall, while rising money prices tend to weigh down the yellow metal. Still, most of the moves depend on how the US Dollar (USD) performs, as the asset is traded in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold in check, while a weaker Dollar is likely to push up Gold prices.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
