- Gold price refreshes new weekly low following strong US Retail Sales figures that dim expectations for aggressive Fed easing next year.
- Despite a drop in Treasury yields, a resilient US Dollar limits Gold’s upward momentum.
- Investors eye the Fed’s policy announcement and the core PCE Price Index release.
Gold price dropped to a new weekly low of $2,633 on Tuesday following the release of strong Retail Sales data in the United States. This weighed on investors’ expectations of the Federal Reserve (Fed), which is expected to adopt a gradual approach to easing in 2025. At the time of writing, the XAU/USD trades at $2,637, down 0.57%.
The Fed has begun its two-day meeting in Washington, DC, and is expected to lower interest rates by 25 basis points (bps) on Wednesday. The markets have already priced in the decision, but participants are looking for the Summary of Economic Projections (SEP) and the Dot Plot. This will provide investors with the Fed rate path for 2025.
The US economic docket witnessed a strong Retail Sales report in November. Later, the Fed announced that Industrial Production for the same period plunged in monthly and annual figures, an indication that business activity continued to suffer from higher interest rates.
Bullion prices remain pressured even though US Treasury bond yields and real yields retreated. Nevertheless, the steady US Dollar keeps the non-yielding metal from extending its gains.
Lower interest rates the Fed sets are usually a tailwind for Gold prices. Speculation that Trump’s upcoming administration would implement expansionary fiscal policies that put upward pressure on inflation could trigger a change among the Federal Open Market Committee (FOMC) members.
Ahead this week, the US economic docket will feature the FOMC policy decision and the release of the core Personal Consumption Expenditures (PCE) Price Index.
Daily digest market movers: Gold price slips below $2,650, extends losses
- Gold prices plunged as US real yields are pressured, falling two basis points to 2.059%, a tailwind for the precious metal.
- The US 10-year Treasury bond yield drops two and a half basis points to 4.379%.
- The US Dollar Index rose 0.07% to 107.01.
- US Retail Sales in November rose by 0.7% MoM, up from 0.5% in October, above estimates. Yearly, sales jumped from 2.9% to 3.8%.
- Industrial Production in November improved compared to October yet dipped to -0.1% MoM, up from -0.4% and below estimates of 0.3%
- US business activity remains robust in the services segment, according to S&P Global.
- The CME FedWatch Tool suggests that traders had priced in a 99% chance of a quarter-point rate cut on Wednesday.
- For 2025, investors are betting that the Fed will lower rates by 100 basis points.
Technical outlook: Gold price retreats, sellers eye 100-day SMA
Gold uptrend remains intact, yet in the near term it is slightly skewed to the downside. The golden metal has been accepted within the $2,602-$2,670 area, capped by the 100 and 50-day Simple Moving Averages (SMAs), respectively.
If Gold drops below the 100-day SMA, the next support would be $2,600. If the price slips, the next support would be the November 14 swing low of $2,536, before challenging the August 20 peak at $2,531. Conversely, if XAU/USD rallies past $2,650, the next resistance would be the 50-day SMA at $2,670, ahead of $2,700.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
Source: https://www.fxstreet.com/news/gold-price-hits-weekly-low-on-us-data-fed-decision-looms-202412171736