Introduction to Gold Market
The gold price (XAU/USD) has edged lower below $4,350 during the early European trading hours on Thursday. This decrease comes after the precious metal reached seven-week highs. The primary reasons for this retreat include some profit-taking and a rebound in the US Dollar (USD). However, the potential downside for gold might be limited due to the recent US jobs data, which has reinforced market expectations of further interest rate cuts by the US Federal Reserve (Fed) and subsequently dragged the USD lower.
Factors Influencing Gold Price
Lower interest rates could reduce the opportunity cost of holding gold, supporting the non-yielding precious metal. Furthermore, escalating geopolitical tensions, such as Venezuela deploying its navy to escort oil ships amid US blockade threats, could boost the gold price as it is considered a traditional safe-haven asset. Traders are also bracing for the release of the US Consumer Price Index (CPI) inflation data, which will be published later. 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.
Market Movers
Several key events and statements are influencing the gold market:
- Venezuela’s Navy Deployment: 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.
- US Federal Reserve Expectations: President Donald Trump spoke about the next chairman of the Fed, stating that the person will believe in lower interest rates "by a lot."
- CPI Expectations: Economists note that the November CPI could capture a period that more heavily reflects holiday season discounts, which might lead to a rebound in December.
- Fed Governor’s Statement: Fed Governor Christopher Waller backed further interest-rate cuts to get the central bank’s setting back to neutral but warned there’s no need to rush amid elevated inflation.
- Atlanta Fed President’s View: Atlanta Fed president Raphael Bostic said he did not support cutting rates last week and does not see a case for cutting rates next year unless inflation declines.
- US Bureau of Labor Statistics Report: The US Bureau of Labor Statistics revealed that Nonfarm Payrolls (NFP) rose by 64,000 in November, and the Unemployment Rate ticked higher to 4.6% in November from 4.4% in October.
- Futures on Federal Funds Rate: Futures are now pricing in a 31% probability the Fed will reduce rates next month after the NFP report.
Technical Analysis
Gold trades on a negative note on the day but 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 the price builds momentum 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.
Conclusion
In conclusion, the gold price is experiencing a mix of influences, from geopolitical tensions and US jobs data to expectations of interest rate cuts and technical analysis indicators. While there are factors pushing the price down, such as profit-taking and a rebound in the USD, the overall outlook remains positive due to gold’s status as a safe-haven asset and the potential for lower interest rates. As the market awaits key economic data releases, including the US Consumer Price Index, investors will be closely watching how these factors interplay to affect the gold price in the coming days.
