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Gold price climbs as traders await US CPI data

  • Gold prices surge toward $2,700, supported by strong market anticipation of a Fed rate cut this December.
  • US small business optimism rises, yet traders await crucial US CPI and PPI data later this week.
  • Speculation about China's central bank Gold purchases and political changes in Syria also influence market dynamics.

Gold climbed during the North American session on Tuesday with buyers eyeing the $2,700 mark for the first time since November 25. One of the drivers of the rise in the price of the yellow metal is the expectation that the Federal Reserve (Fed) will cut rates at the December meeting. At the time of writing, the XAU/USD trades at $2,694, up by 1.32%.

US economic data revealed during the day hinted that small businesses had grown optimistic about the economy, according to a survey by the National Federation of Independent Business. Nevertheless, traders are focused on the release of US inflation figures on the consumer and the producer sides on Wednesday and Thursday, respectively.

Investors seem convinced that the Fed will cut interest rates at the December 17-18 meeting. CME FedWatch Tool data hints that the futures market priced in an 86% chance that Fed Chair Jerome Powell and company will lower the fed funds rate by 25 basis points (bps).

In addition, XAU/USD prices surged on speculation that China’s central bank resumed purchases of the non-yielding metal. Meanwhile, geopolitics played a significant role after Bashar Al-Assad was ousted in Syria.

This week, the US economic docket will feature the Consumer Price Index (CPI), the Producer Price Index (PPI) and Initial Jobless Claims data.

Daily digest market movers: Gold price shrugs off high US yields

  • Gold prices advanced as US real yields rose two basis points to 1.956%.
  • The US 10-year Treasury yield rose three basis points to 4.24%, a tailwind for the Greenback.
  • The US Dollar Index (DXY) soars 0.40% to 106.59 on Tuesday.
  • Small US businesses grew optimistic about the economy. The NFIB index came in at 101.7, exceeding forecasts of 95.3 and 93.7 in October.
  • Data from the Chicago Board of Trade, via the December fed funds rate futures contract, shows investors estimate 19 bps of Fed easing by the end of 2024.

Technical outlook: Gold price resumes its bullish trend, eyes $2,700

Gold’s uptrend resumed on Tuesday, extending its gains past the 50-day Simple Moving Average (SMA) at $2,685, as well as opening the door to challenge the $2,700 figure. The Relative Strength Index (RSI) remains bullish, hinting that buyers are gaining control.

Therefore, XAU/USD’s first resistance would be $2,700, followed by the record high of $2,790.

Conversely, if Bullion drops below the 50-day SMA, the next support would be the $2,650 figure. On further weakness, the next stop would be $2,600, followed by the confluence of an upsloping support trendline and the 100-day Simple Moving Average (SMA) in the $2,580 to $2,590 area. This then comes ahead of the November 14 daily low and intermediate support at $2,536.

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

Christian Borjon Valencia

Markets analyst, news editor, and trading instructor with over 14 years of experience across FX, commodities, US equity indices, and global macro markets.

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