Gold prices saw their second consecutive day of gains as US yields plunged, following data that suggested core inflation may be easing. This raised expectations that the Federal Reserve (Fed) could ease its policy in response to the ongoing disinflation trend. As of the latest trading session, the XAU/USD stands at $2,690.
The rally in gold prices gained momentum after the US Bureau of Labor Statistics (BLS) released data indicating that underlying consumer inflation had softened compared to previous forecasts and the prior month’s figures. The data contributed to a sharp drop in US yields, with markets increasingly speculating that the Fed may be more inclined to cut interest rates following the December meeting.
Following the release, traders are now estimating that the Fed may implement a 40-basis-point reduction in interest rates by the end of 2025.
However, uncertainties remain. A potential challenge to gold’s bullish trend lies in the policies of the incoming administration under former President Donald Trump. Tariff measures proposed by the new administration could spur inflation, which might deter the Fed from lowering borrowing costs. If tariffs are implemented, the US Dollar (USD) could strengthen, potentially undermining gold’s upward momentum.
Market attention is now shifting toward key upcoming economic data, including US retail sales, unemployment claims, and remarks from Federal Reserve officials.
Market Overview: Gold Gains as US Real Yields Decline
Gold prices extended their rally as real yields, measured by the 10-year Treasury Inflation-Protected Securities (TIPS) yield, dropped by 9.5 basis points from 2.33% to 2.234%. The US Dollar Index (DXY), which tracks the dollar against six major currencies, increased by 0.09% to 109.29, recovering from an earlier low of 108.62.
December’s Consumer Price Index (CPI) rose 2.9% year-on-year, as expected, up from 2.7% in November. Meanwhile, core CPI increased by 3.2%, slightly lower than the previous month’s 3.3%.
Looking ahead, retail sales are projected to grow by 0.6% month-on-month, a slowdown from the 0.7% gain in November. Initial jobless claims for the week ending January 11 are expected to rise from 201K to 210K.
New York Fed President John Williams stated that the neutral interest rate is higher due to the country’s significant debt levels. While inflation is retreating, Williams emphasized that the Fed is waiting to assess the actions of elected officials regarding fiscal policy. According to the CME FedWatch Tool, investors are now anticipating the first rate cut at the Fed’s June 18 meeting.
Technical Outlook: Gold Eyes $2,700 as US Yields Retreat
Gold’s uptrend remains strong, with the XAU/USD targeting a breakthrough of the $2,700 mark. Technical indicators, including the Relative Strength Index (RSI), suggest that momentum is favoring higher prices. If gold clears the $2,700 level, the next resistance point will be the December 12 peak at $2,726, followed by the all-time high of $2,790.
However, should the XAU/USD drop below $2,650, the next support levels are seen at the 50-day Simple Moving Average (SMA) at $2,643, followed by the 100-day SMA at $2,633.
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