Gold prices (XAU/USD) are consolidating below a one-month peak, struggling to capitalize on an intraday bounce from below $2,700. As of Thursday’s European session, the precious metal is trading in neutral territory, reflecting a lack of clear direction amid mixed fundamental signals.
The US Consumer Price Index (CPI) report, released Wednesday, revealed that inflation has largely stalled in its progress toward the Federal Reserve’s 2% target. The report indicated that the annual CPI rose to 2.7% in November, up slightly from 2.6% in October. The core CPI, which excludes volatile food and energy prices, also rose by 0.3%, bringing the year-on-year increase to 3.3%. This data has fueled speculation that the Fed may slow its rate-cutting cycle, particularly as incoming President-elect Donald Trump’s policies are expected to increase inflationary pressures. As a result, US Treasury bond yields have risen, which is seen as a headwind for gold, a non-yielding asset.
Despite these headwinds, the downside for gold remains supported by geopolitical risks, particularly the ongoing Russia-Ukraine war and tensions in the Middle East. Additionally, concerns over Trump’s tariff plans and expectations that the Fed will deliver another interest rate cut next week continue to support gold’s safe-haven appeal. However, the subdued price action of the US dollar has failed to provide significant momentum for the metal in either direction.
Traders are now turning their attention to upcoming US economic data, including the Producer Price Index (PPI) and weekly initial jobless claims, for any short-term market catalysts. However, the primary focus is on the Federal Open Market Committee (FOMC) meeting on December 18, which is expected to be a key determinant of gold’s next directional move.
Gold Prices Face Mixed Fundamentals
The CPI report has reinforced expectations that the Fed will continue its rate-cutting policy. According to the CME Group’s FedWatch Tool, market pricing for a 25-basis point rate cut at the Fed’s December meeting stands at more than 98%. This drove gold prices higher, pushing the metal to its highest level in over a month. However, expectations of inflationary pressures resulting from Trump’s economic policies have spurred a rise in US bond yields, providing some support to the US dollar, which remains near its recent monthly highs.
This “risk-on” sentiment, bolstered by positive economic expectations, has led to profit-taking in gold, which struggles to maintain its upward momentum. Nonetheless, the geopolitical risk premium remains intact, with ongoing concerns about the Russia-Ukraine conflict and Middle East instability providing a floor for gold prices.
In terms of technical indicators, the Relative Strength Index (RSI) on the hourly chart has eased from slightly overbought levels. Daily oscillators, however, have begun to show positive momentum, supporting the potential for dip-buying in gold should prices weaken further. If gold falls below $2,700, support is likely to be found near the $2,675-$2,674 area. A further decline could see prices test the $2,658-$2,656 zone, which coincides with key support levels marked by the 50- and 200-period Simple Moving Averages (SMAs) on the 4-hour chart.
On the upside, resistance around $2,726, which marks the high during the Asian session, is expected to act as an immediate barrier. If gold breaks above this level, it could target $2,735 and ultimately test the $2,748-$2,750 range. A sustained move beyond this resistance could open the door for a challenge to the all-time high near $2,800, reached in October, with additional resistance seen around $2,775.
As traders await further economic data and the FOMC decision, gold prices are likely to remain in a holding pattern, with geopolitical and economic uncertainties continuing to shape the outlook for the precious metal.
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