Gold maintains its positive tone heading into the US inflation release

Gold rally stalls below $2,700 with all eyes on the US CPI data for November.
US Consumer Prices are expected to show sticky inflationary pressures and might provide a fresh boost to the USD.
XAU/USD’s technical picture remains positive, with price action standing above the last two week’s trading range.

Gold (XAU/USD) is hesitating on Wednesday after having rallied about 2.5% over the previous three days. The precious metal has been capped at the $2,700 round level during the early Asian session, with investors reluctant to bet against the US Dollar (USD) ahead of the release of the US Consumer Prices Index (CPI) reading at 13:30 GMT.

Price pressures in the United States are expected to have remained sticky in November, with headline inflation picking up. While the data is unlikely to deter the Federal Reserve (Fed) from cutting rates by 25 basis points (bps) next week, it might limit the scope of the easing cycle heading into 2025.

Beyond that, the situation in the Middle East remains uncertain. The Syrian rebels have appointed a prime minister for a transitional government while Israel has stepped up its attacks on the Syrian army’s facilities. Ongoing tensions in the area are buoying safe-haven flows into Gold.

Daily digest market movers: Gold rally stalls as US Dollar firms up

US consumer prices are expected to confirm that inflation remains sticky above the Fed’s 2% target rate. The headline CPI is seen growing by 0.3% in the month and by 2.7% yearly, faster than the 0.2% and 2.6% increases seen in October. The core CPI is expected to have increased at a steady 0.3% monthly and at a 3.3% yearly pace.
The CME Group’s Fed Watch Tool shows that futures markets are pricing an 86% chance of a 25 bps Fed cut after the December 17-18 meeting, and between two to three more cuts in 2025.
In Syria, the rebels have appointed the Islamist Mohammed al-Bashir as the transitional prime minister. The US and Israel have been attacking the infrastructure of the Islamic State and Syrian army bases. There is a tense calm but uncertainty about the success of the provisional government remains high.
Later today, the Bank of Canada (BoC) is expected to deliver a second consecutive 50 bps cut. The Swiss National Bank (SNB) and the European Central Bank (ECB) are expected to cut their respective benchmark rates by a quarter-percentage point on Thursday.

Technical analysis: XAU/USD consolidates gains right below $2,700

Gold’s recent rally has lost some steam, with US Treasury yields bouncing up and the US Dollar appreciating ahead of the US CPI release. The broader trend, however, remains positive, with downside attempts limited above the top of the last two week’s previous range at $2,675.

Above the mentioned $2,700, the November 24 high at $2,720 will come into view ahead of the November 4,5 and 6 highs at around $2,750.

On the downside, immediate support is the intra-day low at $2,675 and then the December 9 low at $2,630, followed by the channel bottom (November 26 and December 5 lows) at $2,610.

XAU/USD 4-Hour Chart

XAUUSD Chart

Central banks FAQs

What does a central bank do?

Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.

What does a central bank do when inflation undershoots or overshoots its projected target?

A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.

Who decides on monetary policy and interest rates?

A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.

Is there a president or head of a central bank?

Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.

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