Gold continued its upward momentum for the second consecutive day, fueled by a sharp drop in US Treasury yields after data pointed to easing core inflation. The price of the yellow metal rose to $2,690 as traders priced in the likelihood of the Federal Reserve adopting a more dovish stance due to the ongoing disinflation trend.
The rally followed the release of data from the US Bureau of Labor Statistics (BLS), which revealed that underlying consumer inflation had slowed more than expected in December, reinforcing the notion that inflationary pressures are moderating. As a result, US yields plummeted, increasing expectations that the Fed might be poised to cut interest rates as early as late 2025.
Despite the bullish outlook, risks persist. The potential for the incoming Trump administration to impose tariffs could reignite inflationary pressures, limiting the Fed’s ability to ease monetary policy. Such a move could also boost the US Dollar, posing a threat to gold’s appeal as a non-yielding asset.
Markets are now focusing on upcoming US economic data, including Retail Sales, unemployment claims, and speeches from Fed officials, for further clues on the central bank’s policy direction.
Market Update: Gold’s Gains Linked to Declining US Real Yields
Gold’s price gains were supported by a significant drop in real yields, with the 10-year Treasury Inflation-Protected Securities (TIPS) yield falling by 9.5 basis points to 2.234%. Meanwhile, the US Dollar Index (DXY), which tracks the dollar against six major currencies, edged up 0.09% to 109.29, recovering from earlier losses.
The Consumer Price Index (CPI) for December rose 2.9% year-over-year, slightly above expectations, while core CPI came in at 3.2%, down from November’s 3.3%. In the coming days, analysts are expecting Retail Sales to rise by 0.6% month-over-month in December, and initial jobless claims to increase to 210,000 for the week ending January 11.
New York Fed President John Williams noted that the neutral interest rate is higher due to the country’s elevated debt levels. While inflation has eased, he emphasized that the Fed is awaiting fiscal policy developments from elected officials.
The CME FedWatch Tool shows that investors are anticipating the first rate cut to occur at the June 18 meeting.
Technical Outlook: Gold Eyes $2,700 as US Yields Slide
Gold’s price remains firmly bullish, with investors targeting a break above $2,700. The Relative Strength Index (RSI) indicates positive momentum, suggesting further gains could be in store. If XAU/USD clears the $2,700 resistance level, the next target would be the December 12 peak of $2,726, followed by a potential rally towards the all-time high of $2,790.
However, a drop below $2,650 could see support at the 50-day Simple Moving Average (SMA) around $2,643, with further downside risk towards the 100-day SMA at $2,633.
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