Gold prices briefly reached a one-month high during the early European session on Thursday but faced challenges in extending gains above the $2,700 mark. Despite positive sentiment surrounding the Federal Reserve’s anticipated pause in its rate-cutting cycle later this month, the US Dollar (USD) has strengthened, pulling back from a one-week low recorded on Wednesday. Coupled with a risk-on market environment, these factors are limiting the upward momentum for gold, traditionally viewed as a safe-haven asset.
Signs of easing inflation in the US have sparked speculation that the Federal Reserve might not completely rule out further rate cuts before the end of the year. This has led to a drop in US Treasury yields, which may help cap the USD’s strength and provide some support for gold. Furthermore, uncertainties surrounding former President Donald Trump’s proposed tariff plan, and its potential impact on global growth, are also expected to limit significant downside risks for the precious metal.
Gold Bulls Face Headwinds from USD Demand and Positive Risk Sentiment
A Bloomberg report earlier this week revealed that Trump’s economic advisers are considering a gradual tariff increase plan. In addition, cooler-than-expected inflation data from the US have renewed expectations that the Federal Reserve’s rate-cutting cycle might not be entirely over, offering a potential boost for gold prices.
According to the US Bureau of Labor Statistics (BLS), the headline Consumer Price Index (CPI) rose by 0.4% in December, pushing the annual inflation rate up to 2.9% from 2.7% in November. The core CPI, excluding volatile food and energy prices, increased by 3.2% year-on-year, slightly below the 3.3% rise anticipated. Following the inflation data, markets now expect the Fed to implement 40 basis points (bps) in rate cuts by the end of the year, up from around 31 bps prior to the data release.
The yield on the benchmark 10-year US Treasury bond retreated from a 14-month high, putting downward pressure on the USD. However, investors remain largely convinced that the Federal Reserve will hold off on further rate cuts later in the year, supporting demand for the dollar and limiting the upside for gold.
Richmond Fed President Tom Barkin noted that while recent inflation data show progress toward the central bank’s 2% target, interest rates should remain restrictive.
Global Tensions Affecting Market Sentiment
On the geopolitical front, Ukraine conducted its most extensive attack yet, targeting military and oil infrastructure deep within Russia with drones and US-made ATACMS missiles. In retaliation, Russia launched a missile and drone strike campaign, primarily targeting Ukraine’s energy infrastructure.
In the Middle East, Qatar’s Prime Minister confirmed that Israel and Hamas had agreed to a ceasefire and a hostage swap after 15 months of conflict in Gaza, which could potentially ease regional tensions.
Market Focus Shifts to Upcoming US Economic Data
Traders are now turning their attention to upcoming US economic data, including monthly Retail Sales and Weekly Initial Jobless Claims, which could offer fresh direction in the North American session.
Technical Outlook for Gold Prices
From a technical perspective, positive momentum on the daily chart suggests that gold may test resistance around the $2,715–$2,720 range. A continuation of buying pressure could push prices toward the $2,748–$2,750 region, with the potential to challenge the all-time high of $2,790 reached in October 2024.
On the downside, gold appears to have solid support near $2,678, with further buying interest expected around the $2,664–$2,663 area. A failure to hold these support levels could see gold prices drop towards $2,635, potentially testing $2,615, a key confluence zone comprising a short-term ascending trendline and the 100-day Exponential Moving Average (EMA).
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