- Gold prices remain in heavy sell-off amid ongoing Trump trade tensions.
- Optimism about strong U.S. economic growth pushed the dollar into the new year on Thursday.
- The rise in US dollar income also triggered a flight to the yellow metal.
Gold prices (XAU/USD) fell for a fifth straight day, falling to their lowest level since September 19, around $2,559-$2,558, on Thursday in the Asian session as U.S. dollar (USD) buying has yet to materialize. People are hoping that U.S. President Trump’s policies will boost economic growth, spur inflation and force the Federal Reserve to extend its cycle, which is supporting a rise in U.S. Treasury yields. That has pushed the dollar to its highest level since November 2023 and continued to weigh heavily on commodities.
Also released on Wednesday, the US Consumer Price Index (CPI) showed progress in reducing inflation, which could lead to further price declines next year. This, along with the recent strong rally in US stocks, has helped fuel outflows from non-yielding gold prices, supporting the prospect of further losses for gold. Investors are currently awaiting the release of the US Producer Price Index (PPI) in the short term, but the focus is on Fed Chair Powell’s comments after the US meeting.
Gold prices held steady amid stronger dollar and rising US bond yields
- The U.S. Bureau of Labor Statistics reported Wednesday that the overall U.S. consumer price index (CPI) rose 0.2% in October and has increased 2.6% over the past 12 months.
- The main index, which excludes non-food items and energy, rose 0.3 percent last month and 3.3 percent annually.
- The data reiterated market expectations that the Fed will cut interest rates for a third time in December due to weak economic conditions.
- According to CME Group’s FedWatch Tool, the probability of another 25-basis-points rate cut at the next FOMC meeting shot to over 80% from less than 60% on Tuesday.
- Commenting on the report, Dallas President Lorie Logan said that the central bank has made a great deal of progress bringing down inflation, but should proceed cautiously.
- St. Louis Fed President Alberto Musalem noted that the risk of inflation moving higher has risen and that sticky inflation makes it difficult for the central bank to continue to ease rates.
- Kansas Fed President Jeffrey Schmid made a rare appearance and said it remains to be seen how much more the US central bank will cut rates, and where they may settle.
- US President-elect Donald Trump’s pledges of tax cuts and increased tariffs on imports could accelerate inflation, limiting the scope for the Fed to cut rates going forward.
- The Trump trade optimism keeps the yield on the 10-year US government bond elevated near a multi-month top and lifts the US Dollar to the highest level since November 2023.
- Thursday’s US economic docket features the release of the usual Weekly Initial Jobless Claims and the Producer Price Index, ahead of Fed Chair Jerome Powell’s appearance.
Gold bears to challenge 100-day moving average/50% Fibonacci retracement. Level Fusion Support
From a technical perspective, the overnight drop below the $2,600 level, which shares the 38.2% Fibonacci retracement level of the June-October rally, is seen as a fresh bearish reversal. This, along with negative oscillators on the calendar, suggests that gold’s path of minimum resistance is still to the downside and supports the possibility of a move towards support at $2,542-2,538. This area includes the 100-day simple moving average (SMA) and the 50% Fibonacci retracement. A break above this would pave the way for a continuation of the recent sharp pullback from the all-time high and open up the psychological $2,500 level.
On the other hand, the attempted recovery will face resistance near the Asian session high of $2,580 before a round of $2,600. A strong support above the latter could open the way for a short-term rally to the static $2,630-$2,632 level, which if lifted could lead to a breakout near the $2,660 area next.
