Gold prices extended their upward momentum for a second consecutive day, buoyed by a sharp drop in U.S. yields following a report suggesting that core inflation is subsiding. This data has led to increasing speculation that the Federal Reserve (Fed) may ease its monetary policy in response to a disinflationary trend. The precious metal is currently trading at $2,690 per ounce.
The rally in gold was sparked after the U.S. Bureau of Labor Statistics (BLS) released data showing a dip in underlying consumer inflation, which fell short of expectations and declined compared to the previous month. The news led to a significant drop in U.S. yields, further fueling expectations that the Fed may consider rate cuts after its December meeting.
Market participants are now forecasting that the Fed could implement a 40 basis point reduction in rates by the end of 2025, reflecting growing confidence in a shift toward easier monetary policy.
However, analysts caution that gold’s upward trajectory is not guaranteed. The incoming administration under Donald Trump may prioritize tariff implementation, a move that could potentially reignite inflation and complicate the Fed’s ability to lower borrowing costs. If such tariffs are enacted, they could strengthen the U.S. dollar, putting downward pressure on gold, which does not yield interest.
Looking ahead, financial markets are focused on several key economic indicators, including U.S. retail sales, unemployment claims, and upcoming statements from Federal Reserve officials.
Market Movers: Gold Gains on Falling U.S. Yields
Gold’s rally was driven by a decline in U.S. real yields, with the 10-year Treasury Inflation-Protected Securities (TIPS) yield dropping by 9.5 basis points, from 2.33% to 2.234%. Meanwhile, the U.S. Dollar Index (DXY), which measures the dollar’s performance against a basket of six major currencies, rose by 0.09% to 109.29, recovering from an intraday low of 108.62.
The latest consumer price data revealed that the Consumer Price Index (CPI) for December rose by 2.9% year-over-year, slightly above the previous month’s 2.7%. Core CPI, which excludes food and energy, increased by 3.2% year-over-year, down from 3.3% in November.
Looking ahead, December retail sales are expected to rise by 0.6% month-over-month, down from November’s 0.7%. Initial jobless claims for the week ending January 11 are projected to increase from 201,000 to 210,000.
In remarks this week, New York Fed President John Williams noted that the neutral rate of interest is higher due to the country’s elevated debt levels. While inflation has moderated, he emphasized that the Fed is awaiting developments in fiscal policy from elected officials.
The CME FedWatch Tool indicates that investors are now anticipating the first rate cut to take place at the Fed’s meeting on June 18.
Technical Outlook: Gold Eyes $2,700 as U.S. Yields Continue to Decline
Gold’s bullish trend remains intact, with the price eyeing a potential break above the $2,700 mark. The Relative Strength Index (RSI) suggests growing momentum for further price gains. Should gold surpass $2,700, the next significant resistance level will be the December 12 peak of $2,726, followed by a record high at $2,790.
On the downside, if the price falls below $2,650, the next level of support would be the 50-day Simple Moving Average (SMA) at $2,643, followed by the 100-day SMA at $2,633.
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