11 Dec 2024

Gold prices have declined from a peak not seen in over two weeks as investors adopt a more cautious stance in anticipation of the upcoming US Consumer Price Index report.

Expectations for a less accommodative Federal Reserve, coupled with increasing US bond yields, are supporting the US dollar and exerting downward pressure on the commodity.

However, geopolitical tensions, concerns regarding trade conflicts, and speculation about potential interest rate cuts are likely to mitigate losses for the XAU/USD.

Gold price (XAU/USD) is currently facing challenges in maintaining its intraday gains above the $2,700 threshold, experiencing a notable decline from a peak reached during the Asian trading session on Wednesday, which was the highest in over two weeks. This marks the first instance of a downward movement after three consecutive days of increases, likely due to repositioning activities in anticipation of the upcoming US consumer inflation data. The pivotal US Consumer Price Index (CPI) report is expected to inform Federal Reserve (Fed) policymakers in their decisions next week, which will subsequently impact the US Dollar (USD) and potentially provide new momentum for the non-yielding yellow metal.

As the market approaches this critical data release, a slight recovery in US Treasury bond yields is helping the USD maintain the gains achieved over the last three days, thereby applying some downward pressure on Gold prices. Nevertheless, ongoing geopolitical tensions related to the escalating Russia-Ukraine conflict and issues in the Middle East, coupled with apprehensions regarding US President-elect Donald Trump's tariff strategies, may continue to lend support to the safe-haven asset XAU/USD. Furthermore, anticipated interest rate cuts by major central banks are likely to mitigate losses for the commodity and should prompt caution among bearish traders.

insight into inflation trends and influence future monetary policy decisions. Investors are particularly keen to see how the CPI figures align with the Federal Reserve's inflation targets, as any significant deviation could prompt a reassessment of interest rate strategies. A higher-than-expected CPI could reinforce the Fed's hawkish stance, potentially leading to a more aggressive approach to interest rate hikes, while a lower reading might bolster the case for rate cuts.

In the context of the gold market, the interplay between rising bond yields and inflation data is critical. Typically, higher yields make non-yielding assets like gold less attractive, as investors seek better returns in interest-bearing securities. Consequently, the recent uptick in US bond yields has prompted gold price bulls to scale back their positions, reflecting a cautious sentiment as they await the CPI report's implications.

Meanwhile, geopolitical tensions continue to shape market dynamics. Israel's military actions in Syria, including airstrikes on military installations and the deployment of ground forces, have heightened regional instability. This escalation could have broader implications for global markets, particularly in energy prices, as any disruption in the Middle East often reverberates through oil markets, impacting inflation and economic forecasts.

In Ukraine, President Zelenskyy's push for increased drone funding and the potential for foreign troop deployment underscores the ongoing conflict's complexity and the urgency for military support. This situation not only affects regional security but also has implications for NATO's strategic posture and relations with Russia, which could further influence global economic conditions.

On the trade front, President-elect Trump's commitment to imposing tariffs on major trading partners signals a shift in US trade policy that could have far-reaching consequences for international trade dynamics. The threat of a 100% tariff on BRICS nations adds another layer of uncertainty, potentially straining relations and impacting global supply chains.

As central banks around the world, including the Bank of Canada and the European Central Bank, prepare to announce potential rate cuts, the market is closely monitoring these developments. A coordinated easing of monetary policy could provide support for gold prices, as lower interest rates typically enhance the appeal of precious metals.

Overall, the confluence of economic indicators, geopolitical tensions, and central bank policies creates a complex landscape for investors. The upcoming US CPI report will be a pivotal moment, as it could either reinforce or challenge current market sentiments, particularly in relation to gold and other commodities. Investors are advised to remain vigilant and adaptable as these factors unfold, shaping the trajectory of both the financial markets and the global economy.

Gold price corrective slide could be seen as buying opportunity near the $2,655-2,655 resistance breakpoint

This week's technical analysis indicates that the breakout above the $2,650-2,655 supply zone, along with the subsequent upward movement, is advantageous for bullish traders. Additionally, the oscillators on the daily chart are showing positive momentum and remain well away from overbought conditions. This scenario reinforces a favorable short-term outlook for Gold prices and suggests the potential for dip-buying near the previously mentioned resistance level. Consequently, this should help mitigate any downside risk for XAU/USD around the $2,630 mark; a decline below this level could lead to further downward movement towards the $2,600 threshold.

Conversely, if the price sustains above the $2,700 mark, it may continue to rise towards the $2,720-2,722 resistance zone. Following this, there is additional resistance near the $2,735 area, and if this level is surpassed, it would indicate that the recent corrective decline from the all-time high reached in October has concluded, thereby shifting the sentiment in favor of bullish traders. This momentum could propel Gold prices towards the $2,758-2,760 range, paving the way to the $2,770-2,772 area and potentially reaching the $2,790 record peak.