- Gold prices hit weekly lows on strong US retail sales that dampen hopes for aggressive Fed easing next year.
- Despite falling US Treasury yields, strength in the US dollar is limiting gold's upside momentum.
- Investors will be closely watching the Fed's policy announcements and the release of the Core PCE Price Index.
Gold prices fell to a new weekly low of $2,633 on Tuesday after the release of strong retail sales data in the US. This weighed on investors' expectations for the Federal Reserve, which is expected to adopt a gradual easing approach in 2025. At the time of writing, XAU/USD is trading 0.57% lower at $2,637.
The Federal Reserve begins its two-day meeting in Washington, D.C., and is expected to cut interest rates by 25 basis points (bps) on Wednesday. Markets have already priced in this decision, but participants are asking for the Summary Economic Projections (SEP) and dot plots. This will provide investors with a path forward for Fed interest rates in 2025.
US economic data reported strong retail sales in November. The Fed later announced that industrial production for the same period fell sharply in its monthly and annual data, showing that business activity continues to be hurt by rising interest rates.
Bullion prices remain under pressure despite lower US Treasury yields and real yields. Nevertheless, low-yielding metals are unable to extend their upside as the US dollar remains stable.
Lower interest rates set by the Federal Reserve are typically a tailwind for gold prices. Speculation that the incoming Trump administration will implement expansionary fiscal policy that will increase upward pressure on inflation could trigger a change in the members of the Federal Open Market Committee (FOMC).
Ahead of this week, US economic data is expected to include FOMC policy decisions and the release of the core personal consumption expenditure (PCE) price index.
Daily Digest Market Trends: Gold Price Falls Below $2,650, Expanding Losses
- Gold prices fell sharply, dropping 2 basis points to 2.059%, a tailwind for the precious metal, as real yields in the US came under pressure.
- The yield on the 10-year US Treasury note fell 2.5 basis points to 4.379%.
- The US dollar index rose 0.07% to 107.01.
- U.S. retail sales rose 0.7% from the previous month in November, beating expectations from a 0.5% increase in October. Annual sales increased from 2.9% to 3.8%.
- Industrial production improved in November compared to October, but fell to -0.1% month-on-month, up from -0.4% and below the expected 0.3%.
- According to S&P Global, U.S. business activity remains strong in the services sector.
- The CME FedWatch tool suggests traders were pricing in a 99% chance of a quarter-point rate cut on Wednesday.
- Investors expect the Fed to cut interest rates by 100 basis points heading into 2025.
Technical Outlook: Gold Price Retreats, Sellers Focus on 100-Day SMA
Gold's uptrend is sustained, but slightly skewed to the downside in the short term. This golden metal is accepted within the 100-day and 50-day simple moving average (SMA) range of $2,602 and $2,670, respectively.
If gold falls below the 100-day SMA, the next support will be at $2,600. If the price declines, the next support would be the November 14th swing low of $2,536, followed by a challenge to the August 20th high of $2,531. Conversely, if XAU/USD rises above $2,650, the next resistance level would be the 50-day SMA of $2,670 above $2,700.
Gold FAQ
Gold has played an important role in human history as it has been widely used as a store of value and a medium of exchange. Today, apart from their brilliance and use as jewellery, precious metals are widely seen as safe assets, meaning they are considered a good investment in turbulent times. Gold is also widely seen as a hedge against inflation and currency depreciation, as it is not dependent on any particular issuer or government.
Central banks are the largest holders of gold. With the aim of supporting their currencies in times of turmoil, central banks tend to purchase gold to diversify foreign exchange reserves and improve perceptions of economic and currency strength. High gold reserves can be a source of confidence in a country's solvency. Central banks added 1,136 tonnes of gold worth about $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest annual purchase amount since records began. Central banks in emerging countries such as China, India and Türkiye are rapidly increasing their gold reserves.
Gold has an inverse relationship with the US dollar and US Treasuries, which are major reserve and safe haven assets. Gold tends to rise when the dollar falls, allowing investors and central banks to diversify their assets during times of turmoil. Gold is also inversely correlated with risk assets. Rising stock markets tend to push gold prices down, while declines in riskier markets tend to favor the precious metal.
Prices may vary depending on various factors. Geopolitical instability and fears of a deep recession can cause the price of gold to quickly rise from its safe-haven status. Gold, a non-yielding asset, tends to rise when interest rates fall, but rising costs usually put pressure on the yellow metal. Still, most moves will depend on how the US dollar (USD) behaves, as the asset is priced in dollars (XAU/USD). A strong dollar tends to suppress gold prices, while a weak dollar can push gold prices up.
