Gold price is at a crossroads, trading around $2,040 ahead of the release of the United States core Personal Consumption Expenditure price index (PCE) data for November. The expected softening of the inflation data is putting pressure on gold due to the Federal Reserve’s (Fed) higher interest rates. However, investors are still leaning towards gold due to optimism over potential rate cuts in 2024. Atlanta Fed Bank President Raphael Bostic sees only two rate cuts, contrary to the median projection of three rate cuts made by the Fed in its latest monetary policy announcement.
While Fed policymakers are downplaying expectations of early rate cuts due to the resilience of the US economy, market participants are still gearing up for more upside in gold above its 15-day high. The majority of Fed policymakers have emphasized the central bank’s focus on bringing down inflation to 2% rather than immediate rate cuts in 2024.
Atlanta Fed Bank President Raphael Bostic reiterated on Monday that there is no urgency for the central bank to lower borrowing costs, and the priority is to ensure that inflation retreats to 2% as the sheer strength of the US economy could delay progress in abating price pressures. He expects two rate cuts in 2024.
Market participants also see a 70% chance of a first rate cut by 25 basis points (bps) in March, as per the CME Fedwatch tool. On the other hand, Richmond Fed Bank President Thomas Barkin has emphasized that rate cuts depend on the economy’s performance, stating that the economy is well-positioned with easing inflation and a steady Unemployment Rate.
The technical analysis indicates that gold’s price movements will depend on the Fed’s inflation gauge and that a decisive break above the Relative Strength Index (RSI) (14) near 60.00 could trigger a bullish momentum.
In addition to the Fed’s preferred inflation gauge, investors will also be focusing on the US Durable Goods Orders data for November. Moreover, geopolitical tensions between Israel and Palestine could add strength to gold.
As for the broader role of gold, it continues to be seen as a safe-haven asset and a hedge against inflation and depreciating currencies, particularly with the highest yearly purchase of gold by central banks since records began in 2022. Furthermore, gold’s price movements are tied to factors such as geopolitical instability, fears of a deep recession, and the performance of the US Dollar.
