Inflation data fuels expectations for interest rate cuts
Gold recently hit a five-week high, supported by the latest US Consumer Price Index (CPI) data, which showed a monthly increase of 0.3% in November – the biggest since April. Core inflation, excluding food and energy, also rose 0.3%, meeting market expectations. These results have strengthened the likelihood of a Federal Reserve rate cut at the upcoming policy meeting, with CME’s FedWatch instrument showing a 98% probability of a quarter-point rate cut.
Lower interest rates generally benefit gold by lowering the opportunity cost of holding non-performing assets. However, rising risk appetite has dampened gains as traders keep an eye on further data, including the US Producer Price Index (PPI) report and weekly unemployment benefits data due later today.
The ECB is expected to maintain a dovish stance
In Europe, it is widely expected that the European Central Bank (ECB) will cut interest rates again and signal continued easing in 2025. The ECB’s decision could further boost gold prices, as accommodative monetary policy tends to increase the precious metal’s appeal.
Geopolitical developments support gold’s call for safe havens
Ongoing geopolitical tensions in Gaza, where renewed ceasefire efforts are taking place, continue to underscore gold’s role as a safe haven. However, more stable US Treasury yields and stable markets have kept gold movements subdued.
Market forecast: cautiously bullish
Gold remains primed for buying opportunities during dips, especially if upcoming PPI data and ECB decisions reinforce expectations of prolonged low interest rates. However, a break above $2721.42 and a push towards the all-time high at $2790.17 will require stronger economic or geopolitical factors. Traders should look for further clarity at the Fed’s upcoming policy meeting next week, which could provide some much-needed momentum.
More information in our Economic Calendar.