Gold prices experienced a significant decline on Thursday, as the precious metal pulled back from earlier gains following a weaker-than-expected inflation report in the United States. After reaching a peak of $4,374, just shy of its all-time high of $4,381, gold (XAU/USD) is currently trading at $4,335.
This downturn comes as traders opted to lock in profits after gold’s recent surge, despite the US Consumer Price Index (CPI) indicating a drop to multi-year lows. The core CPI, which excludes volatile food and energy prices, also fell, suggesting easing inflation pressures. However, concerns about the reliability of this data have surfaced due to the 43-day government shutdown, which may have impacted the accuracy of the figures released by the US Bureau of Labor Statistics.
Despite the softer inflation data, expectations regarding interest rate cuts by the Federal Reserve have remained stable. Current probability data from Capital Edge indicates a 24% chance of a rate cut during the Fed’s next meeting on January 28, 2024. For the year ahead, market participants have priced in around 60 basis points of easing, with the first cut anticipated in June.
Geopolitical factors are also influencing gold prices. As US and Russia plan to resume talks this weekend in Miami, easing tensions could limit gold’s upward trajectory. The upcoming release of the Core Personal Consumption Expenditures Price Index, a key inflation gauge for the Federal Reserve, and the final report from the University of Michigan on consumer sentiment will provide further insights into the economic landscape.
The US CPI rose by 2.7% year-on-year in November 2023, a decrease from 3.0% in September and falling short of expectations for a 3.1% increase. The core CPI also cooled to 2.6% year-on-year, down from 3.0%. This data is crucial as it provides a glimpse into the underlying inflation trends impacting monetary policy.
In addition to inflation data, initial jobless claims for the week ending December 13, 2023, fell to 224,000, down from a revised figure of 237,000, and lower than forecasts of 225,000, according to the US Department of Labor. These figures indicate a resilient labor market, which could complicate the Fed’s decision-making process regarding interest rate cuts.
On the supply side, gold exports from Switzerland to India have plunged by 15%, reaching their lowest level since February 2023. Exports fell to two metric tons in November, down sharply from 26 tons in October, primarily due to higher prices. Conversely, shipments to China increased significantly, rising to 12 tons from a mere two tons over the same period.
Market analysts note that falling US Treasury yields are providing support for gold prices. The yield on the 10-year benchmark note decreased by three basis points to 4.12%, while real yields, which inversely correlate with gold prices, dropped four basis points to 1.88%. The US Dollar Index, tracking the dollar’s performance against a basket of six currencies, remains relatively stable, up 0.03% at 98.43.
From a technical perspective, gold has paused its uptrend as it dropped below the $4,350 mark. If XAU/USD closes below this threshold on a daily basis, the first support level is anticipated at $4,300. A breach of this level could lead to further declines, with additional support at $4,285 and $4,250.
In summary, while gold prices have seen a temporary retreat, the interplay of economic indicators, geopolitical developments, and market sentiment will continue to shape the precious metal’s trajectory in the coming weeks. Traders remain vigilant as they monitor these factors closely.
