Gold prices (XAU/USD) reached a fresh one-month high in the early European session on Thursday but struggled to sustain momentum above the $2,700 level. The US Dollar (USD) has moved away from a one-week low seen on Wednesday, supported by growing expectations that the Federal Reserve (Fed) will pause its rate-cutting cycle later this month. This, coupled with a positive risk sentiment, has posed a challenge for the safe-haven metal.
Signs of easing inflation pressures in the US have raised speculation that the Fed might still consider further rate cuts before the end of the year, which has resulted in a dip in US Treasury bond yields. This could provide some support to gold prices, which do not yield interest. Furthermore, ongoing uncertainties regarding former President Trump’s tariff plans and their potential impact on global growth are expected to limit the downside for gold, as traders now turn their attention to upcoming US economic data for further direction.
USD Demand and Risk Sentiment Weigh on Gold Prices
A recent Bloomberg report highlighted that advisers to incoming US President Donald Trump are considering a strategy to gradually raise tariffs month by month. Meanwhile, cooler-than-expected inflation data from the US has revived expectations that the Fed’s easing cycle might not be over yet, providing some support for gold prices.
The US Bureau of Labor Statistics (BLS) reported a 0.4% rise in the headline Consumer Price Index (CPI) for December, with the annual rate accelerating to 2.9%, up from 2.7% in November. The core CPI, which excludes food and energy, rose 3.2% annually, slightly below November’s 3.3% increase. The market’s reaction has shifted expectations, with investors now anticipating the Fed to implement 40 basis points (bps) of rate cuts by the end of the year, compared to the 31 bps forecast before the December inflation data.
The yield on the benchmark 10-year US government bond has retreated from a 14-month high, dragging the USD to a fresh one-week low. Despite this, many investors remain confident that the Fed will pause its rate-cutting cycle later in 2025, which supports USD demand and limits upward movement for gold.
Global Geopolitical Events and Market Reactions
Geopolitical tensions continue to affect global markets. Ukraine launched its largest attack yet, targeting military and oil facilities deep inside Russia using drones and missiles, including US-made ATACMS ballistic missiles. In response, Russia carried out a missile and drone bombardment, focusing on Ukraine’s gas infrastructure.
Meanwhile, Qatar’s Prime Minister announced that Israel and Hamas had agreed to a ceasefire in Gaza and would exchange Israeli hostages for Palestinian prisoners after 15 months of war.
US Economic Data in Focus
Traders are now looking to the US economic calendar, with key data such as monthly Retail Sales and the usual Weekly Initial Jobless Claims due for release during the North American session. These reports could provide new insights into the direction of the USD and gold prices.
Technical Outlook for Gold Prices
On the technical front, gold may attempt to move towards the $2,715-2,720 zone. If buying momentum continues, gold could target the $2,748-2,750 region, and potentially test the all-time high near $2,790 set in October 2024.
However, any pullback in prices could find strong support around the $2,678 mark, with additional support near the $2,664-2,663 zone. A failure to maintain these support levels could see gold prices fall towards $2,635, approaching the $2,615 region, where an ascending trendline and the 100-day Exponential Moving Average (EMA) intersect.
Conclusion
Gold prices face challenges in maintaining upward momentum as market sentiment and US economic factors weigh in. With the USD strengthening due to expectations of a Fed pause and geopolitical uncertainties in play, gold’s path remains uncertain. Traders are now focusing on upcoming US data for fresh direction, while technical levels will play a crucial role in determining the next moves for the precious metal.