On Tuesday, spot gold rebounded during the U.S. trading session due to data and returned to above $2,670. As of now, the gold price is 2,674.08.
The U.S. PPI data for December was lower than expected, but failed to ease inflation anxiety. Its annual rate was 3.3%, lower than the expected 3.4%, but higher than the previous value of 3%, continuing to hit a new high since February 2023. The monthly rate was 0.2%, lower than the expected 0.3%, and lower than the previous value of 0.4%, the lowest since September 2024.
The U.S. NFIB Small Business Confidence Index for December was 105.1, the highest since October 2018.
Kansas City Fed President Schmid: If Trump's tariffs derail inflation or employment, the Fed will take action.
Israeli media claimed that the Gaza negotiations have entered the "final stage", and Israeli Prime Minister Netanyahu said that Hamas has not yet responded to the final hostage agreement proposal; Hamas sources said that about 1,000 Palestinian prisoners will be released in the preliminary agreement.
The French left-wing coalition party "Unbowed France" submitted a motion of no confidence in the Bayrou government, which will be voted on as early as the 16th.
Gold prices continue to fluctuate back and forth as markets worry about a strong dollar and increased uncertainty in global trade and geopolitics. On the other hand, a strong U.S. jobs report last week boosted the dollar, which in turn dragged down gold prices. Yesterday's weaker-than-expected U.S. PPI data helped gold recover to $2,670. However, the data did not really change expectations of rate cuts, and the market still expects a more hawkish Fed in 2025. Tonight's U.S. CPI data will be a catalyst for greater volatility. However, it would take a big deviation from expectations for the data to make a big move.
The market currently expects the headline CPI to be 2.9% year-on-year. If the data exceeds expectations by a large margin, U.S. bond yields could soar, dragging gold prices lower. However, gold prices have recently remained firm amid a stronger dollar and stronger U.S. data. Any moves after the data release have proven to be short-lived, as we saw yesterday after the PPI data was released.
Technically, gold saw a sharp correction on Monday, closing with a bearish engulfing pattern on the daily line, but there was no follow-up downward trend on Tuesday, instead the daily line closed with a bullish harami. This may suggest that gold prices will rise further. Gold did find support near the previous swing high of 2658, which is why prices may rise again. At the same time, the 14-period RSI also remains at the neutral level of 50, indicating that the upward momentum is still in play. The question now is whether gold has enough momentum to break through the psychological price of $2700.
On the 1-hour level, gold remains in a narrow range of $2658-2674. An hourly closing price outside this area could lead to a directional move, but I would still urge caution, especially if the breakout occurs during the release of CPI data. We have seen from recent price action that this trend has failed to gain traction recently and usually reverses within a few hours after the news or data is released.
Support: 2664, 2658, 2650
Resistance: 2674, 2685, 2700
Gold's recovery seems to have stalled before the December high ($2726) as it no longer sets a series of higher highs and lows. As strong US non-farm data dampens expectations of a Fed rate cut, gold may find it difficult to maintain gains since the monthly low of $2615, and speculation about Fed policy will continue to affect gold. Tonight's US CPI data will be the focus, with the market currently expecting the overall CPI annual rate to rise to 2.9% from 2.7% last month, while the core annual rate remains stable at 3.3%.
Signs of continued price increases amid continued job expansion could prompt the Fed to pause its rate-cutting cycle, with the Fed likely to further adjust its forward guidance. That said, gold could continue to trade in a November range as prices remain below pre-US election levels, but the threat of a Fed policy mistake could keep gold supported.
Technically, the recent rally in gold could unravel as the trend appears to reverse ahead of the December highs, with a daily close below the $2,630-2,660 area and the monthly low of $2,615 coming into view. The next area to watch is around $2,590, but if gold holds above the December low of $2,584, it could face range-bound trading.
On the other hand, gold would need to break above the monthly high of $2,698 to factor in the December high. A breakout/close above $2,730 would open the door to the November high of $2,762.
Gold prices may rise to another record high in 2025 as investors seek safe havens to cope with possible "stock market volatility". Gold soared 27% in 2024, hitting an all-time high of $2,788 in October and setting a record annual average price of $2,389 per ounce. Although people flocked to riskier assets after Trump won the US election, triggering a sell-off, it was still the strongest annual increase in gold since 2020.
The recent strengthening of the US dollar and rising US bond yields may put pressure on gold in the first half of 2025. A higher dollar may make gold bars more expensive for foreign buyers, while the surge in yields may weaken the appeal of interest-free gold.
Investors are increasingly concerned that solid economic data and President-elect Trump's sweeping tariff plans could reignite lingering price pressures, reducing the Fed's room to cut rates. Nonetheless, demand for gold as a portfolio "diversification tool" to help hedge against inflation should be "more than enough to offset" headwinds from the dollar and Treasury yields.
Periods of equity volatility are expected to become more frequent, especially given the "high industry and geographic concentration of portfolios" and high equity valuations. These uncertainties suggest a return to strong official gold buying, as well as diversification demand from less rate-sensitive parts of the investment community. Our target is $2,850 for gold by year-end.
The reason why gold has performed better than historically during the current period of dollar strength can be attributed to investors' concerns about inflation, with gold taking on the mission of an inflation hedge tool. If we happen to see softer inflation data this week, the dollar will likely come under selling pressure, which could boost gold as it will become less expensive to buy.