Gold Weekly Forecast: Fed policy announcement to set the tone for rest of 2024
- Gold lost its bullish momentum after failing to stabilize above $2,700.
- The technical outlook highlights buyers’ hesitancy in the near term.
- The Fed policy announcements and revised dot plot could drive Gold’s action heading into the Christmas holiday.
Gold (XAU/USD) managed to gain traction after closing the previous two weeks in negative territory but failed to stabilize above $2,700, as markets reacted to mixed fundamental drivers. The Federal Reserve’s (Fed) monetary policy announcements on Wednesday could be the last driver of the year for XAU/USD.
Gold gathers bullish momentum on China news
Gold started the new week on a bullish note after the official data published by the People's Bank of China (PBoC) showed over the weekend that China’s central bank resumed buying Gold for its reserves in November after a six-month pause.
“According to a PBoC publication, its Gold holdings rose to 72.96 million ounces by the end of November, compared with 72.80 million ounces at the end of October. The increase in Gold reserves in November corresponds to purchases of 5 tons of Gold,” Commerzbank commodity analyst Carsten Fritsch noted.
Additionally, a readout of a meeting of top Communist Party officials, the Politburo, showed early Monday that China is planning to adopt an "appropriately loose" monetary policy next year, alongside a more proactive fiscal policy to spur economic growth. These remarks revived optimism for an improving demand outlook for Gold, helping prices push higher.
XAU/USD rose about 1% on Monday and continued its rally on Tuesday, gaining nearly 1.3% on the day. Meanwhile, the General Administration of Customs of the People’s Republic of China reported early Tuesday that the trade surplus widened to $97.44 billion in November from $95.27 billion in October.
The US Bureau of Labor Statistics (BLS) reported on Wednesday that inflation in the US, as measured by the change in the Consumer Price Index (CPI), rose to 2.7% on a yearly basis in November from 2.6% in October. The core CPI, which excludes volatile food and energy prices, increased 0.3% on a monthly basis, meeting the market expectation. With markets nearly fully pricing in a Fed rate cut in December after the inflation data, Gold advanced beyond $2,700.
The BLS announced on Thursday that the Producer Price Index (PPI) increased by 3% in November, surpassing the market expectation and October’s reading of 2.6%. On a negative note, the Department of Labor’s weekly report showed that the number of first-time applications for unemployment benefits climbed to 242,000 from 225,000 in the previous week. The benchmark 10-year US Treasury bond yield climbed above 4.3% despite the mixed data and dragged XAU/USD lower.
Additionally, easing geopolitical tensions put additional weight on Gold’s shoulders. The United Nations General Assembly overwhelmingly voted to demand an immediate, unconditional and permanent ceasefire between Israel and Palestinian militants Hamas, while US National Security Adviser Jake Sullivan said that they are looking to close a deal to release hostages and reach a ceasefire.
In the absence of high-tier data releases, the improving risk mood caused Gold to continue to push lower on Friday.
Gold awaits Fed’s last policy decision of 2024
The Fed will hold its two-day policy meeting and announce monetary policy decisions on Wednesday. The US central bank is widely expected to lower the policy rate by 25 basis points (bps) to the range of 4.25%-4.5%. The Fed will also publish the revised Summary of Economic Projections (SEP), the so-called dot plot.
In September, the SEP showed that Fed officials’ median view of the policy rate at the end of 2025 stood at 3.4%. A downward revision to the 2025 interest rate projection, which would point to more than 100 bps reduction in rates, could weigh on the USD with the immediate reaction. In this scenario, US Treasury bond yields could turn south and boost Gold prices.
Market participants will also pay close attention to comments from Fed Chairman Jerome Powell. If Powell adopts a cautious tone regarding further policy-easing, emphasizing a gradual approach, the USD could stay resilient against its rivals. On the flip side, the USD is likely to come under selling pressure in case Powell voices growing concerns over the cooldown in the labor market and its potential negative impact on the growth outlook.
On Thursday, the US Bureau of Economic Analysis will publish the final revision to the third-quarter Gross Domestic Product (GDP) data ahead of Friday’s Personal Consumption Expenditures (PCE) Price Index figures for November. Following the Fed event, the market reaction to the PCE inflation report is likely to remain muted.
It’s also worth noting that position adjustments and/or profit-taking ahead of next week’s Christmas holiday could lift volatility heading into the weekend, causing inter-market correlations to weaken and triggering irregular movements in Gold.
Gold technical outlook
The Relative Strength Index (RSI) indicator on the daily chart retreated to 50, reflecting buyers’ hesitancy to position themselves for an extended uptrend. On the upside, $2,700 (round level) aligns as interim resistance before $2,720 (static level). A weekly close above the latter could open the door for a test of the record-high at $2,790.
In case Gold continues to use $2,670 as resistance, – a level where the Fibonacci 23.6% of the uptrend coming from June meets the 50-day Simple Moving Average (SMA) – technical sellers could look to retain control. In this scenario, $2,600 (Fibonacci 38.2% retracement, 100-day SMA) could be seen as the next support before $2,540 (Fibonacci 50% retracement).
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
Author
Eren Sengezer
FXStreet
As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.
