Gold prices (XAU/USD) have slightly recovered and are trading around $2,670 during Tuesday’s European session, as market sentiment shifts after concerns over the Federal Reserve’s (Fed) policy rate took center stage on Monday. The sentiment turned into a sigh of relief following headlines that President-elect Donald Trump’s administration is considering a gradual approach to its tariff plans. Sources suggest that the Trump administration is concerned about the risk of inflation and aims to avoid a sudden shock.
Ahead of the US Consumer Price Index (CPI) release on Wednesday, traders are keeping a close eye on the Producer Price Index (PPI) data due for release on Tuesday. A stronger-than-expected PPI could raise inflation concerns, potentially causing a surge in US yields, which would likely offset any market relief triggered by news of the gradual tariff implementation. A hot PPI and CPI could diminish the likelihood of a rate cut in 2025, further reducing expectations for a dovish Federal Reserve.
On the technical front, gold prices have slipped back into a broader pennant chart formation that has been in place since November. If gold faces resistance at the upper border of the pennant, a firm rejection could lead to a pullback toward the $2,650 level, followed by further support at the 100-day Simple Moving Average (SMA) around $2,635. The ascending trend line at $2,615 is seen as a key support zone.
On the upside, the October 23 low of $2,708 is the next crucial resistance level. If prices clear this level, the next target could be the all-time high of $2,790.
Market sentiment remains cautious as traders anticipate the PPI and CPI reports, with a key focus on potential shifts in Fed policy expectations and inflation dynamics.
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