Gold prices (XAU/USD) have stabilized around the $2,720 mark during Thursday’s early European session, following significant price fluctuations earlier in the day. The precious metal is trading just below its highest level in over a month, driven by persistent geopolitical risks and expectations of a third consecutive interest rate cut by the Federal Reserve (Fed).
Safe-Haven Demand and Geopolitical Tensions Support Gold
Gold’s rally is fueled by ongoing geopolitical instability, particularly the escalating Russia-Ukraine conflict and rising tensions in the Middle East. These risks, along with concerns over US President-elect Donald Trump’s tariff policies, continue to drive demand for gold as a safe-haven asset. Additionally, speculation that the Fed will cut interest rates further next week, coupled with a modest weakening of the US Dollar (USD), has provided additional support to gold prices.
US CPI Data Reinforces Fed Rate Cut Expectations
On Wednesday, the US Consumer Price Index (CPI) report, which showed a 0.3% rise in November inflation, added fuel to the growing expectations that the Fed will deliver another 25 basis point rate cut at its meeting next week. The annual CPI increased slightly to 2.7%, while the core CPI, which excludes food and energy prices, rose by 3.3%. These figures suggest that inflation is under control, aligning with the Fed’s cautious stance on further rate hikes.
The release of this inflation data bolstered expectations that the Fed will reduce borrowing costs, with the CME Group’s FedWatch Tool showing a near 98% probability of a 25 basis point cut by December 18. This has driven gold prices to a one-month high, benefiting from the market’s anticipation of a dovish Federal Reserve.
However, a rise in US Treasury bond yields, triggered by expectations that Trump’s policies will drive inflation, may limit any significant USD weakness and constrain further gold price gains. Additionally, as the US Dollar benefits from these rising yields, some traders may take profits, preventing gold from breaking higher.
Geopolitical Risk Premium and PPI Data to Influence Gold
Geopolitical risks remain a critical driver of gold’s safe-haven appeal, while trade war fears add to the uncertainty. These factors continue to support the metal’s upward momentum, despite the potential for profit-taking due to the strength of the US Dollar.
Traders are now awaiting the US Producer Price Index (PPI) and weekly Initial Jobless Claims data later Thursday for further market direction. However, the focus will likely shift to the Federal Open Market Committee (FOMC) meeting next week, as any indications of future rate cuts will heavily influence gold’s price action.
Technical Outlook: Gold Poised for Further Gains
From a technical perspective, gold’s price action shows positive momentum. The Relative Strength Index (RSI) on hourly charts has eased from slightly overbought conditions, and daily oscillators are beginning to show positive traction, suggesting potential dip-buying opportunities. If gold prices dip below the $2,700 mark, support is likely to be found around the $2,675-2,674 zone. A further drop could see the metal testing the $2,658-2,656 range, near key 50- and 200-period Simple Moving Averages (SMAs) on the 4-hour chart.
On the upside, the $2,726 area, marked by Thursday’s Asian session high, is seen as a key resistance level. A break above this level could see gold targeting the $2,735 barrier and eventually testing the $2,748-2,750 region. If momentum remains strong, gold could challenge its all-time peak near $2,800, with intermediate resistance at the $2,775 level.
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