Gold prices saw a slight rebound on Thursday, recovering some of the losses incurred on Wednesday, with a modest gain of 0.20%. This small uptick followed the Federal Reserve’s decision to adopt a more cautious approach, dismissing the prospect of three interest rate cuts in 2025. As of Thursday, XAU/USD traded at $2,588, after hitting a daily high of $2,626.
Economic data released on Thursday showed a drop in initial jobless claims, indicating continued strength in the US labor market. Meanwhile, the final estimate of US GDP growth for the third quarter showed an annualized increase of 3.1%, according to the US Bureau of Economic Analysis.
Despite these positive economic indicators, the market remains focused on what lies ahead in 2025. Following the Fed’s decision to reduce borrowing costs by 25 basis points, Federal Reserve Chairman Jerome Powell and the Federal Open Market Committee (FOMC) signaled a more measured approach to future rate cuts. However, the vote was not unanimous. Cleveland Fed President Beth Hammack opposed the move, advocating for a hold on rates.
The Fed’s latest dot plot suggests that officials are anticipating two 25-basis-point rate cuts in 2025, followed by an additional two cuts in 2026. Inflation remains a central concern for policymakers, with projections indicating a gradual decline in inflation to 2.8% by the end of 2024, 2.5% in 2025, and 2.2% in 2026.
Looking ahead, attention is also on political developments. The US government faces the threat of a shutdown, with President-elect Donald Trump pressuring Republicans in the House of Representatives to either increase or eliminate the debt ceiling. Sources close to the matter have indicated that Speaker of the House Mike Johnson and Trump’s team are considering a temporary funding plan that includes disaster aid and a two-year postponement of the debt ceiling debate, alongside a one-year extension of the farm bill.
A potential government shutdown could provide a boost to gold prices, as the precious metal tends to benefit from increased demand in times of political uncertainty, especially in a low-interest-rate environment.
US Economic Data and Market Impact
On Thursday, the US saw a decline in initial jobless claims, which fell from 242,000 to 220,000 for the week ending December 14, surpassing the forecast of 230,000. This drop reflects the resilience of the US labor market. Additionally, the final GDP estimate for Q3 showed a growth rate of 3.1%, exceeding expectations of 2.8% and up from 3% in the previous quarter.
The US 10-year Treasury yield rose by five basis points to 4.568%, while the real yields also climbed by three basis points to 2.248%, exerting downward pressure on gold. The US Dollar Index (DXY), which tracks the dollar against a basket of six other currencies, increased by 0.16% to 108.39.
Looking to upcoming economic reports, market participants are awaiting the release of the Core Personal Consumption Expenditures (PCE) Price Index later this week. The PCE is the Fed’s preferred gauge of inflation and will be closely scrutinized for signs of price pressures. Additionally, the University of Michigan’s Consumer Sentiment Index will provide further insight into the state of US consumer confidence.
Gold Technical Outlook
Despite the recent uptick, gold’s upward momentum faces significant resistance. The 100-day Simple Moving Average (SMA) at $2,605 and the psychological $2,600 mark are key levels to watch. Short-term momentum appears to favor sellers, as indicated by the Relative Strength Index (RSI), which remains below the neutral line.
For a bearish trend to resume, gold must break below the $2,550 level, followed by the swing low from November 14 at $2,536. A further decline could bring the $2,500 support level into focus.
Conversely, a bullish move would require a break above $2,600, with the next resistance at $2,650 and the 50-day SMA at $2,670. If these levels are cleared, the next target for gold could be $2,700.
Market Movers
- Gold prices are under pressure from rising real yields and US Treasury yields.
- The US Dollar Index surged, reflecting the dollar’s strength against other major currencies.
- Initial jobless claims dropped to 220K, signaling a resilient labor market.
- US GDP growth exceeded expectations at 3.1% for Q3, up from 3% in Q2.
- The Fed’s projections for inflation and economic growth suggest a cautious approach in the coming years.
With key economic releases on the horizon, including the PCE data and consumer sentiment figures, gold traders will closely monitor these indicators to gauge the future direction of the precious metal.
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