Gold declines on profit-taking ahead of US CPI inflation release
- Gold price loses ground in Thursday’s early European session, pressured by profit-taking and a stronger US Dollar.
- Fed rate cut bets and geopolitical risks could boost safe-haven flows, capping the downside of Gold.
- Traders will closely monitor the US November CPI inflation report on Thursday.
Gold price (XAU/USD) edges lower below $4,350 during the early European trading hours on Thursday. The precious metal retreats from seven-week highs amid some profit-taking and a rebound in the US Dollar (USD). The potential downside for the yellow metal might be limited after the recent US jobs data reinforced market expectations of further interest rate cuts by the US Federal Reserve (Fed) and dragged the USD lower. Lower interest rates could reduce the opportunity cost of holding Gold, supporting the non-yielding precious metal.
Furthermore, geopolitical tensions escalate after Venezuela deploys its navy to escort oil ships amid US blockade threats. This, in turn, could boost the Gold price as it is considered a traditional safe-haven asset.
Traders brace for the release of the US Consumer Price Index (CPI) inflation data, which will be published later on Thursday. The headline CPI is expected to show a rise of 3.1% YoY in November, while the core CPI is projected to show an increase of 3.0% YoY during the same period. Also, the US weekly Initial Jobless Claims will be released later in the day.
Daily Digest Market Movers: Gold drifts lower on profit-taking ahead of key CPI report
- Venezuela’s government has ordered its navy to escort ships carrying petroleum products from its port, escalating the risk of a confrontation with the US after President Donald Trump ordered a “blockade” aimed at the country’s oil industry.
- Trump spoke in a national address early Thursday, saying that the next chairman of the Fed will be someone who believes in lower interest rates "by a lot.” He further noted that he will soon announce a successor to current Fed Chair Jerome Powell.
- "November CPI this year could capture a period that more heavily reflects holiday season discounts than a usual November, which would reflect average prices through the whole month," said Veronica Clark, an economist at Citigroup. "If there is some abnormal weakness in November goods prices, there could be a larger rebound in these components in December."
- Fed Governor Christopher Waller on Wednesday backed further interest-rate cuts to get the central bank’s setting back to neutral, per Bloomberg. However, Waller also warned there’s no need to rush amid elevated inflation.
- Atlanta Fed president Raphael Bostic said on Tuesday that he did not support cutting rates last week and does not see a case for cutting rates next year unless inflation declines.
- The US Bureau of Labor Statistics (BLS) on Tuesday revealed that Nonfarm Payrolls (NFP) rose by 64,000 in November after falling by 105,000 in October. The Unemployment Rate in the US ticked higher to 4.6% in November from 4.4% in October.
- Futures on the federal funds rate are now pricing in a 31% probability the Fed will reduce rates next month after the NFP report, compared with 22% just before, according to LSEG estimates.
Gold holds a positive long-term technical bias
Gold trades on a negative note on the day. According to the four-hour chart, the precious metal maintains a constructive outlook, with the price holding above the key 100-day Exponential Moving Average. The path of least resistance is to the upside as the Bollinger Bands widen and the 14-day Relative Strength Index (RSI) is located above the midline, suggesting that further upside looks favorable.
If green candlesticks show up and momentum builds above the upper boundary of the Bollinger Band of $4,352, XAU/USD could be gearing up for another run at an all-time high of $4,381, en route to the $4,400 psychological mark.
On the other hand, if the pair prints more red candles and stays below the December 17 low of $4,300, this could attract sellers toward the December 16 low of $4,271. The additional downside filter to watch is the 100-day EMA of $4,233.
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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
Lallalit Srijandorn
FXStreet
Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.
